1.Narra Nickel Mining and Development Corporation v.

behind petitioners’ filing of the MPSAs over the areas covered by

Redmont Consolidated Mines, Corporation, G.R. No. 195580, applications since it knows that it can only participate in mining
January 28, 2015 activities through corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital stocks were
mostly owned by MBMI, they were likewise disqualified from
FACTS: Redmont Consolidated Mines Corp. (Redmont), a domestic engaging in mining activities through MPSAs, which are reserved
corporation organized and existing under Philippine laws, took only for Filipino citizens.
interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and In their Answers, petitioners averred that they were qualified persons
Natural Resources (DENR), it learned that the areas where it wanted under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
to undertake exploration and mining activities where already covered Mining Act of 1995. Additionally, they stated that their nationality as
by Mineral Production Sharing Agreement (MPSA) applications of applicants is immaterial because they also applied for Financial or
petitioners Narra, Tesoro and McArthur. Technical Assistance Agreements (FTAA) for McArthur, Tesoro and
Narra, which are granted to foreign-owned corporations.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Nevertheless, they claimed that the issue on nationality should not be
Mining, Inc. (SMMI), filed an application for an MPSA and raised since McArthur, Tesoro and Narra are in fact Philippine
Exploration Permit (EP) with the Mines and Geo-Sciences Bureau Nationals as 60% of their capital is owned by citizens of the
(MGB). Subsequently, SMMI was issued MPSA. The MPSA and EP Philippines. They asserted that though MBMI owns 40% of the
were then transferred to Madridejos Mining Corporation (MMC) shares of PLMC (which owns 5,997 shares of Narra), 40% of the
and, on November 6, 2006, assigned to petitioner McArthur. shares of MMC (which owns 5,997 shares of McArthur)4 and 40%
Petitioner Narra acquired its MPSA from Alpha Resources and of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),
Development Corporation and Patricia Louise Mining & the shares of MBMI will not make it the owner of at least 60% of the
Development Corporation (PLMDC) which previously filed an capital stock of each of petitioners. They added that the best tool
application for an MPSA with the MGB. Subsequently, PLMDC used in determining the nationality of a corporation is the "control
conveyed, transferred and/or assigned its rights and interests over the test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act
MPSA application in favor of Narra. of 1991. They also claimed that the POA of DENR did not have
Another MPSA application of SMMI was filed with the DENR. jurisdiction over the issues in Redmont’s petition since they are not
SMMI subsequently conveyed, transferred and assigned its rights enumerated in Sec. 77 of RA 7942. Finally, they stressed that
and interest over the said MPSA application to Tesoro. Redmont has no personality to sue them because it has no pending
claim or application over the areas applied for by petitioners.
On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of On December 14, 2007, the POA issued a Resolution disqualifying
petitioners’ applications for MPSA. In the petitions, Redmont alleged petitioners from gaining MPSAs.
that at least 60% of the capital stock of McArthur, Tesoro and Narra Aggrieved by the Resolution and Order of the POA, McArthur and
are owned and controlled by MBMI Resources, Inc. (MBMI), a Tesoro filed a joint Notice of Appeal and Memorandum of Appeal
100% Canadian corporation. Redmont reasoned that since MBMI is with the Mines Adjudication Board (MAB) while Narra separately
a considerable stockholder of petitioners, it was the driving force filed its Notice of Appeal10 and Memorandum of Appeal.
In their respective memorandum, petitioners emphasized that they Motion for Reconsideration and Supplement Motion for
are qualified persons under the law. Also, through a letter, they Reconsideration of the MAB’s September 10, 2008 Resolution.
informed the MAB that they had their individual MPSA applications On July 1, 2009, however, the MAB issued a second Order denying
converted to FTAAs. Pending the resolution of the appeal filed by Redmont’s Motion for Reconsideration and Supplemental Motion for
petitioners with the MAB, Redmont filed a Complaint with the Reconsideration and resolving the appeals filed by petitioners.
Securities and Exchange Commission (SEC), seeking the revocation
of the certificates for registration of petitioners on the ground that Hence, the petition for review filed by Redmont before the CA,
they are foreign-owned or controlled corporations engaged in mining assailing the Orders issued by the MAB. In a Resolution dated
in violation of Philippine laws. Thereafter, Redmont filed on February 15, 2011, the CA denied the Motion for Reconsideration
September 1, 2008 a Manifestation and Motion to Suspend filed by petitioners. CA found that there was doubt as to the
Proceeding before the MAB praying for the suspension of the nationality of petitioners when it realized that petitioners had a
proceedings on the appeals filed by McArthur, Tesoro and Narra. common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of
Subsequently, Redmont filed before the Regional Trial Court of Department of Justice (DOJ) Opinion No. 020, Series of 2005,
Quezon City, a Complaint for injunction with application for adopting the 1967 SEC Rules which implemented the requirement of
issuance of a temporary restraining order (TRO) and/or writ of the Constitution and other laws pertaining to the exploitation of
preliminary injunction. Redmont prayed for the deferral of the MAB natural resources, the CA used the "grandfather rule" to determine
proceedings pending the resolution of the Complaint before the SEC. the nationality of petitioners. It provided:
But before the RTC can resolve Redmont’s Complaint and Shares belonging to corporations or partnerships at least 60% of the
applications for injunctive reliefs, the MAB issued an Order on capital of which is owned by Filipino citizens shall be considered as
September 10, 2008, finding the appeal meritorious. Belatedly, on of Philippine nationality, but if the percentage of Filipino ownership
September 16, 2008, the RTC issued an Order granting Redmont’s in the corporation or partnership is less than 60%, only the number of
application for a TRO and setting the case for hearing the prayer for shares corresponding to such percentage shall be counted as of
the issuance of a writ of preliminary injunction on September 19, Philippine nationality. Thus, if 100,000 shares are registered in the
2008. name of a corporation or partnership at least 60% of the capital stock
Meanwhile, on September 22, 2008, Redmont filed a Motion for or capital, respectively, of which belong to Filipino citizens, all of
Reconsideration of the September 10, 2008 Order of the MAB. the shares shall be recorded as owned by Filipinos. But if less than
Subsequently, it filed a Supplemental Motion for Reconsideration on 60%, or say, 50% of the capital stock or capital of the corporation or
September 29, 2008. partnership, respectively, belongs to Filipino citizens, only 50,000
Before the MAB could resolve Redmont’s Motion for shares shall be recorded as belonging to aliens.24(emphasis supplied)
Reconsideration and Supplemental Motion for Reconsideration, In determining the nationality of petitioners, the CA looked into their
Redmont filed before the RTC a Supplemental Complaint21 in Civil corporate structures and their corresponding common shareholders.
Case No. 08-63379. Using the grandfather rule, the CA discovered that MBMI in effect
On October 6, 2008, the RTC issued an Order granting the issuance owned majority of the common stocks of the petitioners as well as at
of a writ of preliminary injunction enjoining the MAB from finally least 60% equity interest of other majority shareholders of petitioners
disposing of the appeals of petitioners and from resolving Redmont’s through joint venture agreements. The CA found that through a "web
of corporate layering, it is clear that one common controlling ISSUE: W/N The Court of Appeals’ ruling that Narra, Tesoro and
investor in all mining corporations involved x x x is MBMI."25 McArthur are foreign corporations based on the "Grandfather Rule"
Thus, it concluded that petitioners McArthur, Tesoro and Narra are is contrary to law, particularly the express mandate of the Foreign
also in partnership with, or privies-in-interest of, MBMI. Investments Act of 1991, as amended, and the FIA Rules.
While the petition was pending with the CA, Redmont filed with the
Office of the President (OP) a petition dated May 7, 2010 seeking the HELD:
cancellation of petitioners’ FTAAs. The OP rendered a Decision on
April 6, 2011, wherein it canceled and revoked petitioners’ FTAAs The main issue in this case is centered on the issue of petitioners’
for violating and circumventing the "Constitution x x x[,] the Small nationality, whether Filipino or foreign. In their previous petitions,
Scale Mining Law and Environmental Compliance Certificate as they had been adamant in insisting that they were Filipino
well as Sections 3 and 8 of the Foreign Investment Act and E.O. corporations, until they submitted their Manifestation and
584."27 The OP, in affirming the cancellation of the issued FTAAs, Submission dated October 19, 2012 where they stated the alleged
agreed with Redmont stating that petitioners committed violations change of corporate ownership to reflect their Filipino ownership.
against the abovementioned laws and failed to submit evidence to Thus, there is a need to determine the nationality of petitioner
negate them. The Decision further quoted the December 14, 2007 corporations.
Order of the POA focusing on the alleged misrepresentation and Basically, there are two acknowledged tests in determining the
claims made by petitioners of being domestic or Filipino nationality of a corporation: the control test and the grandfather rule.
corporations and the admitted continued mining operation of PMDC Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the
using their locally secured Small Scale Mining Permit inside the area 1967 SEC Rules which implemented the requirement of the
earlier applied for an MPSA application which was eventually Constitution and other laws pertaining to the controlling interests in
transferred to Narra. It also agreed with the POA’s estimation that enterprises engaged in the exploitation of natural resources owned by
the filing of the FTAA applications by petitioners is a clear Filipino citizens, provides:
admission that they are "not capable of conducting a large scale Shares belonging to corporations or partnerships at least 60% of the
mining operation and that they need the financial and technical capital of which is owned by Filipino citizens shall be considered as
assistance of a foreign entity in their operation, that is why they of Philippine nationality, but if the percentage of Filipino ownership
sought the participation of MBMI Resources, Inc." The Motion for in the corporation or partnership is less than 60%, only the number of
Reconsideration of the Decision was further denied by the OP. shares corresponding to such percentage shall be counted as of
Petitioners then filed a Petition for Review on Certiorari of the OP’s Philippine nationality. Thus, if 100,000 shares are registered in the
Decision and Resolution with the CA. In the CA Decision dated name of a corporation or partnership at least 60% of the capital stock
February 29, 2012, the CA affirmed the Decision and Resolution of or capital, respectively, of which belong to Filipino citizens, all of
the OP. Thereafter, petitioners appealed the same CA decision to this the shares shall be recorded as owned by Filipinos. But if less than
Court which is now pending with a different division.
60%, or say, 50% of the capital stock or capital of the corporation or
Thus, the instant petition for review against the October 1, 2010 partnership, respectively, belongs to Filipino citizens, only 50,000
Decision of the CA. shares shall be counted as owned by Filipinos and the other 50,000
shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares grandfather rule "has been abandoned and is no longer the applicable
belonging to corporations or partnerships at least 60% of the capital rule."41 They also opined that the last portion of Sec. 3 of the FIA
of which is owned by Filipino citizens shall be considered as of admits the application of a "corporate layering" scheme of
Philippine nationality," pertains to the control test or the liberal rule. corporations. Petitioners claim that the clear and unambiguous
On the other hand, the second part of the DOJ Opinion which wordings of the statute preclude the court from construing it and
provides, "if the percentage of the Filipino ownership in the prevent the court’s use of discretion in applying the law. They said
corporation or partnership is less than 60%, only the number of that the plain, literal meaning of the statute meant the application of
shares corresponding to such percentage shall be counted as the control test is obligatory.
Philippine nationality," pertains to the stricter, more stringent We disagree. "Corporate layering" is admittedly allowed by the FIA;
grandfather rule. but if it is used to circumvent the Constitution and pertinent laws,
Prior to this recent change of events, petitioners were constant in then it becomes illegal. Further, the pronouncement of petitioners
advocating the application of the "control test" under RA 7042, as that the grandfather rule has already been abandoned must be
amended by RA 8179, otherwise known as the Foreign Investments discredited for lack of basis.
Act (FIA), rather than using the stricter grandfather rule. The Art. XII, Sec. 2 of the Constitution provides:
pertinent provision under Sec. 3 of the FIA provides:
Sec. 2. All lands of the public domain, waters, minerals, coal,
SECTION 3. Definitions. - As used in this Act: petroleum and other mineral oils, all forces of potential energy,
a.) The term Philippine national shall mean a citizen of the fisheries, forests or timber, wildlife, flora and fauna, and other
Philippines; or a domestic partnership or association wholly owned natural resources are owned by the State. With the exception of
by the citizens of the Philippines; a corporation organized under the agricultural lands, all other natural resources shall not be alienated.
laws of the Philippines of which at least sixty percent (60%) of the The exploration, development, and utilization of natural resources
capital stock outstanding and entitled to vote is wholly owned by shall be under the full control and supervision of the State. The State
Filipinos or a trustee of funds for pension or other employee may directly undertake such activities, or it may enter into co-
retirement or separation benefits, where the trustee is a Philippine production, joint venture or production-sharing agreements with
national and at least sixty percent (60%) of the fund will accrue to Filipino citizens, or corporations or associations at least sixty per
the benefit of Philippine nationals: Provided, That were a corporation centum of whose capital is owned by such citizens. Such agreements
and its non-Filipino stockholders own stocks in a Securities and may be for a period not exceeding twenty-five years, renewable for
Exchange Commission (SEC) registered enterprise, at least sixty not more than twenty-five years, and under such terms and
percent (60%) of the capital stock outstanding and entitled to vote of conditions as may be provided by law.
each of both corporations must be owned and held by citizens of the xxxx
Philippines and at least sixty percent (60%) of the members of the
Board of Directors, in order that the corporation shall be considered a The President may enter into agreements with Foreign-owned
Philippine national. (emphasis supplied) corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals,
The grandfather rule, petitioners reasoned, has no leg to stand on in petroleum, and other mineral oils according to the general terms and
the instant case since the definition of a "Philippine National" under conditions provided by law, based on real contributions to the
Sec. 3 of the FIA does not provide for it. They further claim that the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local cloud of doubt in the Court’s mind. To determine, therefore, the
scientific and technical resources. (emphasis supplied) actual participation, direct or indirect, of MBMI, the grandfather rule
The emphasized portion of Sec. 2 which focuses on the State must be used.
entering into different types of agreements for the exploration, McArthur Mining, Inc.
development, and utilization of natural resources with entities who As previously discussed, McArthur acquired its MPSA application
are deemed Filipino due to 60 percent ownership of capital is from MMC, which acquired its application from SMMI. McArthur
pertinent to this case, since the issues are centered on the utilization has a capital stock of ten million pesos (PhP 10,000,000) divided into
of our country’s natural resources or specifically, mining. Thus, there 10,000 common shares at one thousand pesos (PhP 1,000) per share.
is a need to ascertain the nationality of petitioners since, as the Noticeably, Olympic Mines & Development Corporation (Olympic)
Constitution so provides, such agreements are only allowed did not pay any amount with respect to the number of shares they
corporations or associations "at least 60 percent of such capital is subscribed to in the corporation, which is quite absurd since Olympic
owned by such citizens." is the major stockholder in MMC. MBMI’s 2006 Annual Report
It is apparent that it is the intention of the framers of the Constitution sheds light on why Olympic failed to pay any amount with respect to
to apply the grandfather rule in cases where corporate layering is the number of shares it subscribed to. It states that Olympic entered
present. into joint venture agreements with several Philippine companies,
In other words, based on the said SEC Rule and DOJ Opinion, the wherein it holds directly and indirectly a 60% effective equity
Grandfather Rule or the second part of the SEC Rule applies only interest in the Olympic Properties.46 Quoting the said Annual report:
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in On September 9, 2004, the Company and Olympic Mines &
cases where the joint venture corporation with Filipino and foreign Development Corporation ("Olympic") entered into a series of
stockholders with less than 60% Filipino stockholdings [or 59%] agreements including a Property Purchase and Development
invests in other joint venture corporation which is either 60-40% Agreement (the Transaction Documents) with respect to three nickel
Filipino-alien or the 59% less Filipino). Stated differently, where the laterite properties in Palawan, Philippines (the "Olympic
60-40 Filipino- foreign equity ownership is not in doubt, the Properties"). The Transaction Documents effectively establish a joint
Grandfather Rule will not apply. (emphasis supplied) venture between the Company and Olympic for purposes of
After a scrutiny of the evidence extant on record, the Court finds that developing the Olympic Properties. The Company holds directly and
this case calls for the application of the grandfather rule since, as indirectly an initial 60% interest in the joint venture. Under certain
ruled by the POA and affirmed by the OP, doubt prevails and persists circumstances and upon achieving certain milestones, the Company
in the corporate ownership of petitioners. Also, as found by the CA, may earn up to a 100% interest, subject to a 2.5% net revenue
doubt is present in the 60-40 Filipino equity ownership of petitioners royalty.47 (emphasis supplied)
Narra, McArthur and Tesoro, since their common investor, the 100% Thus, as demonstrated in this first corporation, McArthur, when it is
Canadian corporation––MBMI, funded them. However, petitioners "grandfathered," company layering was utilized by MBMI to gain
also claim that there is "doubt" only when the stockholdings of control over McArthur. It is apparent that MBMI has more than 60%
Filipinos are less than 60%. or more equity interest in McArthur, making the latter a foreign
Obviously, the instant case presents a situation which exhibits a corporation.
scheme employed by stockholders to circumvent the law, creating a Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a Studying MBMI’s Summary of Significant Accounting Policies
capital stock of ten million pesos (PhP 10,000,000) divided into ten dated October 31, 2005 explains the reason behind the intricate
thousand (10,000) common shares at PhP 1,000 per share. After corporate layering that MBMI immersed itself in:
subsequently studying SMMI’s corporate structure, it is not JOINT VENTURES The Company’s ownership interests in various
farfetched for us to spot the glaring similarity between SMMI and mining ventures engaged in the acquisition, exploration and
MMC’s corporate structure. Again, the presence of identical development of mineral properties in the Philippines.
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under
the headings "Nationality," "Number of Shares," "Amount Under a joint venture agreement the Company holds directly and
Subscribed," and "Amount Paid" are exactly the same except for the indirectly an effective equity interest in the Alpha Property of 60.4%.
amount paid by MBMI which now reflects the amount of two million Pursuant to a shareholders’ agreement, the Company exercises joint
seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, control over the companies in the Alpha Group.48 (emphasis
the total value of the amount paid is two million eight hundred nine supplied)
thousand nine hundred pesos (PhP 2,809,900). Concluding from the above-stated facts, it is quite safe to say that
Accordingly, after "grandfathering" petitioner Tesoro and factoring petitioners McArthur, Tesoro and Narra are not Filipino since
in Olympic’s participation in SMMI’s corporate structure, it is clear MBMI, a 100% Canadian corporation, owns 60% or more of their
that MBMI is in control of Tesoro and owns 60% or more equity equity interests. Such conclusion is derived from grandfathering
interest in Tesoro. This makes petitioner Tesoro a non-Filipino petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
corporation and, thus, disqualifies it to participate in the exploitation, Going further and adding to the picture, MBMI’s Summary of
utilization and development of our natural resources. Significant Accounting Policies statement– –regarding the "joint
Narra Nickel Mining and Development Corporation venture" agreements that it entered into with the "Olympic" and
"Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
Moving on to the last petitioner, Narra, which is the transferee and Noticeably, the ownership of the "layered" corporations boils down
assignee of PLMDC’s MPSA application, whose corporate to MBMI, Olympic or corporations under the "Alpha" group wherein
structure’s arrangement is similar to that of the first two petitioners MBMI has joint venture agreements with, practically exercising
discussed. The capital stock of Narra is ten million pesos (PhP majority control over the corporations mentioned. In effect, whether
10,000,000), which is divided into ten thousand common shares looking at the capital structure or the underlying relationships
(10,000) at one thousand pesos (PhP 1,000) per share. between and among the corporations, petitioners are NOT Filipino
Patricia Louise Mining & Development Corporation nationals and must be considered foreign since 60% or more of their
Using the grandfather method, we further look and examine capital stocks or equity interests are owned by MBMI.
PLMDC’s corporate structure. Yet again, the usual players in
petitioners’ corporate structures are present. Similarly, the amount of
money paid by the 2nd tier majority stock holder, in this case,
Palawan Alpha South Resources and Development Corp.
(PASRDC), is zero.
2. Indian Chamber of Commerce Phils., Inc. vs. Filipino Indian corporate existence, without any act on its part to extend its term, its
Chamber of Commerce in the Philippines, Inc., 799 SCRA 278, right over the name ended. Thus, the name "Filipino Indian Chamber
G.R. No. 184008 August 3, 2016 of Commerce in the Philippines, Inc." is free for appropriation by
any party.
FACTS: Filipino-Indian Chamber of Commerce of the Philippines,
Inc. (defunct FICCPI) was originally registered with the SEC as Sitaldas appealed the decision of the CRMD to the SEC En Bane,
Indian Chamber of Commerce of Manila, Inc. on November 24, which appeal was docketed as SEC Case No. 05-008. On December
1951, with SEC Registration Number 64655 On October 7, 1959, it 7, 2005, the SEC En Bane denied the appeal,
amended its corporate name into Indian Chamber of Commerce of
the Philippines, Inc., and further amended it into Filipino-Indian
Chamber of Commerce of the Philippines, Inc. on Sitaldas appealed the SEC En Banc decision to the CA, the CA
affirmed the decision of the SEC En Banc. It ruled that Mansukhani,
reserving the name 'Filipino Indian Chamber of Commerce in the
March 4, 1977,.6 Pursuant to its Articles of Incorporation, and Philippines, Inc.," has the of the better right over the corporate name.
without applying for an extension of its corporate term, the defunct It ruled that with the expiration corporate life of the defunct FICCPI,
FICCPI's term of existence expired on November 24, 2001. without an extension having been filed and granted, it lost its legal
personality as a corporation. Thus, the CA affirmed the SEC En
Banc ruling that after the expiration of its term, the defunct FICCPI's
On January 20, 2005, Mr. Naresh Mansukhani (Mansukhani) rights over the name also ended. The CA also cited SEC
reserved the corporate name "Filipino Indian Chamber of Memorandum Circular No. 14-200018 which gives protection to
Commerce in the Philippines, Inc." (FICCPI), for the period from corporate names for a period of three years after the approval of the
January 20, 2005 to April 20, 2005, with the Company Registration dissolution of the corporation. t noted that the reservation for the use
and Monitoring Department (CRMD) of the SEC. of the corporate name "Filipino Indian Chamber of Commerce in the
In an opposition letter dated April 1, 2005, Ram Sitaldas (Sitaldas), Philippines, Inc.," and the opposition were filed only in January
claiming to be a representative of the defunct FICCPI, alleged that 2005, way beyond this three-year period.
the corporate name has been used by the defunct FICCPI since 1951,
and that the reservation by another person who is not its member or
representative is illegal. On March 14, 2006, pending resolution by the CA, the SEC issued
the Certificate of Incorporation of respondent FICCPI, pursuant to its
ruling in SEC Case No. 05-008.
The CRMD called the parties for a conference and required them to
submit their position papers. CRMD rendered a decision granting
Mansukhani's reservation, holding that he possesses the better right Meanwhile, on December 8, 2005,22 Mr. Pracash Dayacanl, who
over the corporate name1 The CRMD ruled that the defunct FICCPI allegedly represented the defunct FICCPI, filed an application with
has no legal personality to oppose the reservation of the corporate the CRMD for the reservation of the corporate name "Indian
name by Mansukhani. After the expiration of the defunct FICCPFs Chamber of Commerce Phils., Inc." (ICCPI). Upon knowledge,
Mansukhani, in a letter dated February 14, 2006, formally opposed
the application. Mansukhani cited the SEC En Banc decision in SEC the word (Filipino) making it different from the proposed corporate
Case No. 05-008 recognizing him as the one possessing the better name. SEC Memorandum Circular No. 14-2000 requires, however,
right over the corporate name "Filipino Chamber of Commerce in the that it should be the proposed corporate name which should contain
Philippines, Inc. CRMD denied Mansukhani's opposition. It stated one distinctive word different from the name of the corporation
that the name "Indian Chamber of Commerce Phils., Inc." is not already registered, and not the other way around, as In this case.
deceptively or confusingly similar to "Filipino Indian Chamber of Finally, the CA held that the SEC En Bane did not violate ICCPFs
Commerce in the Philippines, Inc." On the same date, the CRMD right to equal protection when it ordered ICCPI to change its
approved and issued the Certificate of Incorporation of petitioner corporate name. The SEC En Bane merely compelled ICCPI to
ICCPI. comply with its undertaking to change its corporate name in case
another person or firm has acquired a prior right to the use of the said
name or the same is deceptively or confusingly similar to one already
Thus, respondent FICCPI, through Mansukhani, appealed the registered with the SEC.
CRMD's decision to the SEC En Banc. SEC En Bane granted the
appeal filed by FICCPI,29 and reversed the CRMD's decision. Citing CA denied the Motion for Reconsideration filed by ICCPI.
Section 18 of the Corporation Code, the SEC En Bane made a
finding that "both from the standpoint of their [ICCPI and FICCPI] ISSUE: W/N the Court of Appeals committed serious error when it
corporate names and the purposes for which they were established, held that there is similarity between the petitioner and the respondent
there exist[s] a similarity that could inevitably lead to confusion." (sic) corporate name that would inevitably lead to confusion

It also ruled that "oppositor [FICCPI] has the prior right to use its HELD:
corporate name to the exclusion of the others. It was registered with 1. FICCPI acquired a prior right over the use of the corporate
the Commission on March 14, 2006 while respondent [ICCPI] was name
registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior
appropriation and use of its name, it is entitled to protection against In Industrial Refractories Corporation of the Philippines v. Court of
the use of identical or similar name of another corporation." Appeals, the Court applied the priority of adoption rule to determine
prior right, taking into consideration the dates when the parties used
ICCPI appealed the SEC En Banc decision their respective corporate names.
CA affirmed the decision of the SEC En Banc. It held that by simply ICCPI cannot argue that it first incorporated and held the "Filipino
looking at the corporate names of ICCPI and FICCPI, one may Indian Chamber of Commerce," in 1977; and that it established the
readily notice the striking similarity between the two. Thus, an name's goodwill until it failed to renew its name due to oversight. It
ordinary person using ordinary care and discrimination may be led to is settled that a corporation is ipso facto dissolved as soon as its term
believe that the corporate names of ICCPI and FICCPI refer to one of existence expires. SEC Memorandum Circular No. 14-2000
and the same corporation. The CA further ruled that ICCPI's likewise provides for the use of corporate names of dissolved
corporate name did not comply with the requirements of SEC corporations:
Memorandum Circular No. 14-2000. It noted that under the facts of
this case, it is the registered corporate name, FICCPI, which contains 14. The name of a dissolved firm shall not be allowed to be used by
other firms within three (3) years after the approval of the dissolution
of the corporation by the Commission, unless allowed by the last On the other, the words "in the Philippines" and "Phils., Inc." are
stockholders representing at least majority of the outstanding capital simply geographical locations of the corporations which, even if
stock of the dissolved firm. appended to both the corporate names, will not make one distinct
When the term of existence of the defunct FICCPI expired on from the other. Under the facts of this case, these words cannot be
November 24, 2001, its corporate name cannot be used by other separated from each other such that each word can be considered to
corporations within three years from that date, until November 24, add distinction to the corporate names. Taken together, the words in
2004. FICCPI reserved the name "Filipino Indian Chamber of the phrase "in the Philippines" and in the phrase "Phils. Inc." are
Commerce in the Philippines, Inc." on January 20, 2005, or beyond synonymous—they both mean the location of the corporation.
the three-year period. Thus, the SEC was correct when it allowed Thus, the CA is correct when it ruled, "[a]s correctly found by the
FICCPI to use the reserved corporate name. SEC en bane, the word 'Filipino' in the corporate name of the
respondent [FICCPI] is merely descriptive and can hardly serve as an
effective differentiating medium necessary to avoid confusion. The
2. ICCPI's name is identical and deceptively or confusingly other two words alluded to by petitioner [ICCPI] that allegedly
similar to that of FICCPI distinguishes its corporate name from that of the respondent are the
words 'in' and 'the' in the respondent's corporate name. To our
The second requisite in the Philips Export case likewise obtains in mind, the presence of the words 'in' and 'the' in respondent's
two respects: the proposed name is (a) identical or (b) deceptively or corporate name does not, in any way, make an effective distinction to
confusingly similar to that of any existing corporation or to any other that of petitioner."
name already protected by law. Petitioner cannot argue that the combination of words in respondent's
corporate name is merely descriptive and generic, and consequently
cannot be appropriated as a corporate name to the exclusion of the
On the first point, ICCPI's name is identical to that of FICCPI. others.57 Save for the words "Filipino," "in the," and "Inc.," the
ICCPFs and FICCPFs corporate names both contain the same words corporate names of petitioner and respondent are identical in all other
"Indian Chamber of Commerce." ICCPI argues that the word respects. Furthermore, the wholesale appropriation by petitioner of
"Filipino" in FICCPFs corporate name makes it easily respondent's corporate name cannot find justification under the
distinguishable from ICCPI.51 It adds that confusion and deception generic word rule. We agree with the Court of Appeals' conclusion
are effectively precluded by appending the word "Filipino" to the that a contrary ruling would encourage other corporations to adopt
phrase "Indian Chamber of Commerce." Further, ICCPI claims that verbatim and register an existing and protected corporate name, to
the corporate name of FICCPI uses the words "in the Philippines" the detriment of the public.
while ICCPI uses only "Phils, Inc."

On the second point, ICCPI's corporate name is deceptively or

ICCPFs arguments are without merit. These words do not effectively confusingly similar to that of FICCPI. It is settled that to determire
distinguish the corporate names. On the one hand, the word the existence of confusing similarity in corporate names, the test is
"Filipino" is merely a description, referring to a Filipino citizen or whether the similarity is such as to mislead a person, using ordinary
one living in the Philippines, to describe the corporation's members. care and discrimination. In so doing, the court must examine the
record as well as the names themselves.59 Proof of actual confusion 3. Gold Line Tours, Inc. vs. Heirs of Maria Concepcion Lacsa,
need not be shown. It suffices that confusion is probably or likely to 673 SCRA 399, G.R. No. 159108 June 18, 2012
occur.
FACTS: On August 2, 1993, Ma. Concepcion Lacsa (Concepcion)
In this case, the overriding consideration in determining wheiher a and her sister, Miriam Lacsa (Miriam), boarded a Goldline passenger
person, using ordinary care and discrimination, might be misled is bus with Plate No. NXM-105 owned and operated by Travel &Tours
the circumstance that both ICCPI and FICCPI have a common Advisers, Inc. They were enroute from Sorsogon to Cubao, Quezon
primary purpose, that is, the promotion of Filipino-Indian business in City.6 At the time, Concepcion, having just obtained her degree of
the Philippines. Bachelor of Science in Nursing at the Ago Medical and Educational
Center, was proceeding to Manila to take the nursing licensure board
examination.7 Upon reaching the highway at Barangay San Agustin
Considering these corporate purposes, the SEC En Banc made a in Pili, Camarines Sur, the Goldline bus, driven by Rene Abania
finding that "[i]t is apparent that both from the standpoint of their (Abania), collided with a passenger jeepney with Plate No. EAV-313
corporate names and the purposes for which they were established, coming from the opposite direction and driven by Alejandro Belbis.8
there exist a I similarity that could inevitably lead to confusion." This As a result, a metal part of the jeepney was detached and struck
finding of the SEC En Bane was fully concurred with and adopted by Concepcion in the chest, causing her instant death. On August 23,
the CA. 1993, Concepcion’s heirs, represented by Teodoro Lacsa, instituted
Findings of fact of quasi-judicial agencies, like the SEC, are in the RTC a suit against Travel & Tours Advisers Inc. and Abania to
generally accorded respect and even finality by this Court, if recover damages arising from breach of contract of carriage.
supported by substantial evidence, in recognition of their expertise The defendants blamed the death of Concepcion to the recklessness
on the specific matters under their consideration, and more so if the of Bilbes as the driver of the jeepney, and of its operator, Salvador
same has been upheld by the appellate court, as in this case. Romano; and that they had consequently brought a third-party
In implementing Section 18 of the Corporation Code of the complaint against the latter.
Philippines (BP 68), the following revised guidelines in the approval On April 20, 2001, petitioner submitted a so-called verified third
of corporate and partnership names are hereby adopted for the party claim, claiming that the tourist bus bearing Plate No. NWW-
information and guidelines of all concerned: 883 be returned to petitioner because it was the owner; that petitioner
15. Registrant corporations or partnership shall submit a letter had not been made a party to Civil Case No. 93-5917; and that
undertaking to change their corporate or partnership name in case petitioner was a corporation entirely different from Travel & Tours
another person or firm has acquired a prior right to the use of said Advisers, Inc., the defendant in Civil Case No. 93-5917.
firm name or the same is deceptively or confusingly similar to one It is notable that petitioner’s Articles of Incorporation was amended
already registered unless this undertaking is already included as one on November 8, 1993,38 shortly after the filing of Civil Case No. 93-
of the provisions of the articles of incorporation or partnership of the 5917 against Travel & Tours Advisers, Inc.
registrant.
Respondents opposed petitioner’s verified third-party claim on the
Finding merit in respondent's claims, the SEC En Bane merely following grounds, namely: (a) the third-party claim did not comply
compelled petitioner to comply with its undertaking.
with the required notice of hearing as required by Rule 15, Sections 4 Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which
and 5 of the Rules of Court; (b) Travel & Tours Advisers, Inc. and should have been named party defendant.
petitioner were identical entities and were both operated and Be that as it may, We concur in the trial court’s finding that the two
managed by the same person, William Cheng; and (c) petitioner was companies are actually one and the same, hence the levy of the bus in
attempting to defraud its creditors –respondents herein – hence, the question was proper.
doctrine of piercing the veil of corporate entity was squarely
applicable.
On August 2, 2001, the RTC dismissed petitioner’s verified third- ISSUE: W/N the the CA for holding that the RTC did not act
party claim, observing that the identity of Travel & Tours Adivsers, without jurisdiction or grave abuse of discretion in finding that
Inc. could not be divorced from that of petitioner considering that petitioner and Travel & Tours Advisers, Inc., the defendant in Civil
Cheng had claimed to be the operator as well as the Case No. 5917, were one and same entity, and for sustaining the
President/Manager/incorporator of both entities; and that Travel & propriety of the levy of the tourist bus with Plate No. NWW-883 in
Tours Advisers, Inc. had been known in Sorsogon as Goldline. satisfaction of the writ of execution.
Petitioner moved for reconsideration, but the RTC denied the motion
on October 22, 2001. HELD: The main contention of Third Party Claimant is that it is the
Thence, petitioner initiated a special civil action for certiorari in the owner of the Bus and therefore, it should not be seized by the sheriff
CA. On October 30, 2002, the CA promulgated its decision because the same does not belong to the defendant Travel & Tours
dismissing the petition for certiorari, holding as follows: Advises, Inc. (GOLDLINE) as the third party claimant and defendant
are two separate corporation with separate juridical personalities.
The petition lacks merit. Upon the other hand, this Court had scrutinized the documents
As stated in the decision supra, William Ching disclosed during the submitted by the Third party Claimant and found out that William
trial of the case that defendant Travel & Tours Advisers, Inc. Ching who claimed to be the operator of the Travel & Tours
(Goldline), of which he is an officer, is operating sixty (60) units of Advisers, Inc. (GOLDLINE) is also the President/Manager and
Goldline buses. That the Goldline buses are used in the operations of incorporator of the Third Party Claimant Goldline Tours Inc. and he
defendant company is obvious from Mr. Cheng’s admission. The is joined by his co-incorporators who are "Ching" and "Dy" thereby
Amended Articles of Incorporation of Gold Line Tours, Inc. disclose this Court could only say that these two corporations are one and the
that the following persons are the original incorporators thereof: same corporations. This is of judicial knowledge that since Travel &
Antonio O. Ching, Maribel Lim Ching, witness William Ching, Tours Advisers, Inc. came to Sorsogon it has been known as
Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no GOLDLINE.
reason why defendant company would be using Goldline buses in its This Court is not persuaded by the proposition of the third party
operations unless the two companies are actually one and the same. claimant that a corporation has an existence separate and/or distinct
Moreover, the name Goldline was added to defendant’s name in the from its members insofar as this case at bar is concerned, for the
Complaint. There was no objection from William Ching who could reason that whenever necessary for the interest of the public or for
have raised the defense that Gold Line Tours, Inc. was in no way the protection of
liable or involved. Indeed, it appears to this Court that rather than
enforcement of their rights, the notion of legal entity should not and The RTC thus rightly ruled that petitioner might not be shielded from
is not to be used to defeat public convenience, justify wrong, protect liability under the final judgment through the use of the doctrine of
fraud or defend crime. This is what the third party claimant wants to separate corporate identity. Truly, this fiction of law could not be
do including the defendant in this case, to use the separate and employed to defeat the ends of justice.
distinct personality of the two corporation as a shield to further an
end subversive of justice by avoiding the execution of a final
judgment of the court. 4. Pioneer Insurance Surety Corporation vs. Morning Star
Travel, 762 SCRA 283, G.R. No. 198436 July 8, 2015
As we see it, the RTC had sufficient factual basis to find that
petitioner and Travel and Tours Advisers, Inc. were one and the
same entity, specifically:– (a) documents submitted by petitioner in FACTS: As a general rule, a corporation has a separate and distinct
the RTC showing that William Cheng, who claimed to be the personality from those who represent it. Its officers are solidarily
operator of Travel and Tours Advisers, Inc., was also the liable only when exceptional circumstances exist, such as cases
President/Manager and an incorporator of the petitioner; and (b) enumerated in Section 31 of the Corporation Code. The liability of
Travel and Tours Advisers, Inc. had been known in Sorsogon as the officers must be proven by evidence sufficient to overcome the
Goldline. On its part, the CA cogently observed: burden of proof borne by the plaintiff.
As stated in the (RTC) decision supra, William Ching disclosed This case originated from a Complaint for Collection of Sum of
during the trial of the case that defendant Travel & Tours Advisers, Money and Damages filed by Pioneer Insurance & Surety
Inc. (Goldline), of which he is an officer, is operating sixty (60) units Corporation (Pioneer) against Morning Star Travel & Tours, Inc.
of Goldline buses. That the Goldline buses are used in the operations (Morning Star) for the amounts Pioneer paid the International Air
of defendant company is obvious from Mr. Cheng’s admission. The Transport Association under its credit insurance policy. The amounts
Amended Articles of Incorporation of Gold Line Tours, Inc. disclose of P100,479,171.59 and US$457,834.14 represent Morning Star’s
that the following persons are the original incorporators thereof: overdue remittances to the International Air Transport Association.
Antonio O. Ching, Maribel Lim Ching, witness William Ching, Morning Star and International Air Transport Association entered a
Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no Passenger Sales Agency Agreement such that Morning Star must
reason why defendant company would be using Goldline buses in its report all air transport ticket sales to International Air Transport
operations unless the two companies are actually one and the same. Association and account all payments received through the
Moreover, the name Goldline was added to defendant’s name in the centralized system called Billing and Settlement Plan. Morning Star
Complaint. There was no objection from William Ching who could only holds in trust all monies collected as these belong to the airline
have raised the defense that Gold Line Tours, Inc. was in no way companies.
liable or involved. Indeed it appears to this Court that rather than International Air Transport Association obtained a Credit Insurance
Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which Policy from Pioneer to assure itself of payments by accredited travel
should have been named party defendant.
agents for ticket sales and monies due to the airline companies under
Be that as it may, We concur in the trial court’s finding that the two the Billing and Settlement Plan. The policy was for the period from
companies are actually one and the same, hence the levy of the bus in November 1, 2001 to December 31, 2002, renewed for the period
question was proper. from January 1, 2003 to December 31, 2003.
The policy was made known to the accredited travel agents. Morning Meanwhile, Pioneer filed an Ex-Parte Motion for Issuance of Alias
Star, through its President, Benny Wong, was among those that Summons since Morning Star was previously served through
declared itself liable to indemnify Pioneer for any and all claims substituted service. The trial court granted the Motion, and alias
under the policy. He executed a registration form under the Credit summons was served on February 5, 2007. Upon motion, Morning
Insurance Program for BSP-Philippines Agents. Star was declared in default for failure to file an Answer within the
Morning Star had an accrued billing of P49,051,641.80 and period.27
US$325,865.35 for the period from December 16, 2002 to December On June 28, 2007, Morning Star filed a Motion for Leave of Court to
31, 2002. It failed to remit these amounts through the Billing and File Attached Answer explaining that it only received a copy of the
Settlement Plan, prompting the International Air Transport Complaint on February 5, 2007.28 Its counsel also alleged that he
Association to send a letter dated January 17, 2003 advising on the was retained only on June 22, 2007.29 The trial court denied the
overdue remittance. Motion on July 23, 2007, and also denied reconsideration.30
International Air Transport Association again declared Morning Star The Regional Trial Court in its Decision31 dated November 9, 2007
in default by a letter dated January 20, 2003 for its overdue account ruled in favor of Pioneer and ordered respondents to jointly and
covering the period from January 1, 2003 to January 20, 2003.19 severally pay Pioneer. The Court of Appeals, in its Decision dated
Pursuant to the credit insurance policies, International Air Transport February 28, 2011, affirmed the trial court with modification in that
Association demanded from Pioneer the sums of P109,728,051.00 only Morning Star was liable to pay petitioner.
and US$457,834.14 representing Morning Star’s overdue account as
of April 30, 2003. Pioneer investigated, ascertained, and validated ISSUE: Whether the doctrine of piercing the corporate veil applies
the claims, then paid International Air Transport Association the to hold the individual respondents solidarily liable with respondent
amounts of P100,479,171.59 and US$457,834.14. Morning Star Travel and Tours, Inc. to pay the award in favor of
Consequently, Pioneer demanded these amounts from Morning Star petitioner Pioneer Insurance & Surety Corporation.
through a letter dated September 23, 2003. International Air
Transport Association executed in Pioneer’s favor a Release of HELD: The law vests corporations with a separate and distinct
Claim and Subrogation Receipt on December 23, 2003. personality from those that represent these corporations.
On November 10, 2005, Pioneer filed a Complaint for Collection of The corporate legal structure draws its "economic superiority" from
Sum of Money and Damages against Morning Star and its key features such as a separate corporate personality. Unlike other
shareholders and directors. business associations such as partnerships, the corporate framework
Morning Star, Benny Wong, and Estelita Wong were served with encourages investment by allowing even small capital contributors to
summons and a copy of the Complaint on November 22, 2005, while be part of a big business endeavor made possible by the aggregation
Arsenio Chua, Sonny Chua, and Wong Yan Tak were unserved. of their capital funds. The consequent limited liability feature, since
corporate assets will answer for corporate debts, also proves
The trial court granted Pioneer’s Motion to Declare Respondents in attractive for investors. However, this legal structure should not be
Default for failure to file an Answer within the period. Pioneer abused.
presented its evidence ex-parte.
A separate corporate personality shields corporate officers acting in The trial court gave weight to its finding that respondent Morning
good faith and within their scope of authority from personal liability Star still availed itself of loans and/or obligations with International
except for situations enumerated by law and jurisprudence, thus: Air Transport Association despite its financial standing of operating
Personal liability of a corporate director, trustee or officer along at a loss:
(although not necessarily) with the corporation may so validly attach, Further investigation by the plaintiff shows that it could not find any
as a rule, only when — assets or properties in the name of defendant Morning Star because
‘1. He assents (a) to a patently unlawful act of the corporation, or (b) even the land and the building where it held office was registered in
for bad faith or gross negligence in directing its affairs, or (c) for the name of "Morning Star Management Ventures Corporation", as
conflict of interest, resulting in damages to the corporation, its evidenced by the certified true copies of the transfer certificates of
stockholders or other persons; title (TCT) nos. 192243 and 192244 in the name of Morning Star
Management Ventures Corporation and unlike the defendant
‘2. He consents to the issuance of watered stocks or who, having Morning Star, which has practically the same officers and members
knowledge thereof, does not forthwith file with the corporate of the Board, has only an asset of Php125,392,960.00 and liabilities
secretary his written objection thereto; of Php4,306,702[.]00 and an income deficit of Php26,922,598.00 as
‘3. He agrees to hold himself personally and solidarily liable with the of December 31, 2001. Similarly, the Pic [‘]N Pac Mart, Inc., which
corporation; or has the same set of officers, said corporation has shown a total assets
‘4. He is made, by a specific provision of law, to personally answer of Php5,423,201.30 and liabilities/stockholders equity of
for his corporate action.’ Php5,423,201.30 but with a retained earnings of Php194,412[.]74 as
of December 31, 1999. Plaintiff contends that in such a case,
The first exception comes from Section 31 of the Corporation Code: defendant Morning Star has used the separate and distinct corporate
SECTION 31. Liability of Directors, Trustees or Officers. — personality accorded to it under the Corporation Code to commit said
fraudulent transaction of incurring corporate debts and allow the
Directors or trustees who wilfully and knowingly vote for or assent
herein individual defendants to escape personal liability and placing
to patently unlawful acts of the corporation or who are guilty of gross
the assets beyond the reach of the creditors. (Emphasis supplied,
negligence or bad faith in directing the affairs of the corporation or
citations omitted)
acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for On the other hand, the Court of Appeals ruled that the general rule on
all damages resulting therefrom suffered by the corporation, its separate corporate personality and against personal liability by
stockholders or members and other persons. (Emphasis supplied) corporate officers applies since petitioner failed to prove bad faith
amounting to fraud by the corporate officers:
Petitioner imputes gross negligence and bad faith on the part of the
individual respondents for incurring the huge indebtedness to The mere fact that Morning Star has been incurring huge losses and
International Air Transport Association. that it has no assets at the time it contracted large financial
obligations to IATA, cannot be considered that its officers,
Bad faith "imports a dishonest purpose or some moral obliquity and
Defendants-Appellants Estelita Co Wong, Benny H. Wong, Arsenio
conscious doing of a wrong, not simply bad judgment or
Chua, Sonny Chua and Wong Yan Tak, acted in bad faith or such
negligence." "[I]t means breach of a known duty through some
circumstance would amount to fraud, warranting personal and
motive or interest or ill will; it partakes of the nature of fraud."
solidary liability of its corporate officers. The same is also true with
the fact that Morning Star Management Ventures Corporation and ISSUE: Whether or not SEC committed grave abuse of discretion
Pic ‘N Pac Mart, Inc., corporations having the same set of officers as therein as to the proper understanding of "capital".
Morning Star, were doing relatively well during the time that the
former incurred huge losses. Thus, only Morning Star should be held
personally liable to Plaintiff- Appellee, and not its corporate officers. HELD:
Piercing the corporate veil in order to hold corporate officers The heart of the controversy is the interpretation of Section 11, Article
personally liable for the corporation’s debts requires that "the bad XII of the Constitution, which provides: "No franchise, certificate, or
faith or wrongdoing of the director must be established clearly and any other form of authorization for the operation of a public utility
convincingly [as] [b]ad faith is never presumed. shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens x x x."
5. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November
22, 2016 The Gamboa Decision already held, in no uncertain terms, that what
FACTS: Before the Court is the Motion for Reconsideration dated the Constitution requires is "[fJull [and legal] beneficial ownership of
January 19, 20171 (the Motion) filed by petitioner Jose M. Roy III 60 percent of the outstanding capital stock, coupled with 60 percent of
(movant) seeking the reversal and setting aside of the Decision dated the voting rights x x x must rest in the hands of Filipino nationals x x
November 22, 20162 (the Decision) which denied the movant's x." 11 And, precisely that is what SEC-MC No. 8 provides, viz.: "x x
petition, and declared that the Securities and Exchange Commission x For purposes of determining compliance [with the constitutional or
(SEC) did not commit grave abuse of discretion in issuing statutory ownership], the required percentage of Filipino ownership
Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8) as the shall be applied to BOTH (a) the total number of outstanding shares
same was in compliance with, and in fealty to, the decision of the of stock entitled to vote in the election of directors; AND (b) the total
Court in Gamboa v. Finance Secretary Teves,3 (Gamboa Decision) number of outstanding shares of stock, whether or not entitled to vote
and the resolution4 denying the Motion for Reconsideration therein x x x."
(Gamboa Resolution).
In construing "full beneficial ownership," the Implementing Rules and
The Motion presents no compelling and new arguments to justify the Regulations of the Foreign Investments Act of 1991 (FIA-IRR)
reconsideration of the Decision. provides:

The grounds raised by movant are: (1) He has the requisite standing For stocks to be deemed owned and held by Philippine citizens or
because this case is one of transcendental importance; (2) The Court Philippine nationals, mere legal title is not enough to meet the required
has the constitutional duty to exercise judicial review over any grave Filipino equity. Full beneficial ownership of the stocks, coupled with
abuse of discretion by any instrumentality of government; (3) He did appropriate voting rights is essential. Thus, stocks, the voting rights of
not rely on an obiter dictum; and (4) The Court should have treated the which have been assigned or transferred to aliens cannot be considered
petition as the appropriate device to explain the Gamboa Decision. held by Philippine citizens or Philippine nationals.
In turn, "beneficial owner" or "beneficial ownership" is defined in the Court in the Gamboa Decision adopted the foregoing definition of the
Implementing Rules and Regulations of the Securities Regulation term "capital" in Section 11, Article XII of the 1987 Constitution in
Code (SRC-IRR) as: express recognition of the sensitive and vital position of public utilities
both in the national economy and for national security, so that the
[A]ny person who, directly or indirectly, through any contract, evident purpose of the citizenship requirement is to prevent aliens
arrangement, understanding, relationship or otherwise, has or shares from assuming control of public utilities, which may be inimical to the
voting power (which includes the power to vote or direct the voting of national interest. This purpose prescinds from the "benefits"/dividends
such security) and/or investment returns or power (which includes the that are derived from or accorded to the particular stocks held by
power to dispose of, or direct the disposition of such security) x x x. Filipinos vis-a-vis the stocks held by aliens. So long as Filipinos have
14 controlling interest of a public utility corporation, their decision to
declare more dividends for a particular stock over other kinds of stock
Thus, the definition of "beneficial owner or beneficial ownership" in is their sole prerogative - an act of ownership that would presumably
the SRC-IRR, which is in consonance with the concept of "full be for the benefit of the public utility corporation itself.
beneficial ownership" in the FIA-IRR, is, as stressed in the Decision,
relevant in resolving only the question of who is the beneficial owner 6. Andaya vs. Rural Bank of Cabadbaran, Inc., 799 SCRA 325,
or has beneficial ownership of each "specific stock" of the public G.R. No. 188769 August 3, 2016
utility company whose stocks are under review. If the Filipino has the
voting power of the "specific stock", i.e., he can vote the stock or direct
another to vote for him, or the Filipino has the investment power over FACTS: Andaya bought from Chute 2,200 shares of stock in the
the "specific stock", i.e., he can dispose of the stock or direct another Rural Bank of Cabadbaran for P220,000. The transaction was
to dispose of it for him, or both, i.e., he can vote and dispose of that evidenced by a notarized document denominated as Sale of Shares of
"specific stock" or direct another to vote or dispose it for him, then Stocks. Chute duly endorsed and delivered the certificates of stock to
such Filipino is the "beneficial owner" of that "specific stock." Being Andaya and, subsequently, requested the bank to register the transfer
considered Filipino, that "specific stock" is then to be counted as part and issue new stock certificates in favor of the latter. Andaya also
of the 60% Filipino ownership requirement under the Constitution. separately communicated with the bank's corporate secretary,
The right to the dividends, jus fruendi - a right emanating from respondent Oraiz, reiterating Chute's request for the issuance of new
ownership of that "specific stock" necessarily accrues to its Filipino stock certificates in petitioner's favor.
"beneficial owner." A few days later, the bank's corporate secretary wrote Chute to
inform her that he could not register the transfer. He explained that
Once more, this is emphasized anew to disabuse any notion that the under a previous stockholders' Resolution, existing stockholders
dividends accruing to any particular stock are determinative of that were given priority to buy the shares of others in the event that the
stock's "beneficial ownership." Dividend declaration is dictated by the latter offered those shares for sale (i.e., a right of first refusal). He
corporation's unrestricted retained earnings. On the other hand, the then asked Chute if she, instead, wished to have her shares offered to
corporation's need of capital for expansion programs and special existing stockholders. He told her that if no other stockholder would
reserve for probable contingencies may limit retained earnings buy them, she could then proceed to sell her shares to outsiders.
available for dividend declaration. 15 It bears repeating here that the
Meanwhile, the bank's legal counsel, respondent Gonzalez, informed stock certificates in his name. It explained that he had failed "[to
Andaya that the latter's request had been referred to the bank's board show] that the transfer of subject shares of stock [was] recorded in
of directors for evaluation. Gonzalez also furnished him a copy of the the stock and transfer book of [the] bank or that [he was] authorized
bank's previous reply to Chute concerning a similar request from her. by [Chute] to make the transfer." According to the trial court, Ponce
Andaya responded by reiterating his earlier request for the requires that a person seeking to transfer shares must appear to have
registration of the transfer and the issuance of new certificates of an express instruction and a specific authority from the registered
stock in his favor. Citing Section 98 of the Corporation Code, he stockholder, such as a special power of attorney, to cause the
claimed that the purported restriction on the transfer of shares of disposition of stocks registered in the stockholder's name. It ruled
stock agreed upon during the 2001 stockholders' meeting could not that "[w]ithout the sale first registered or an authority from the
deprive him of his right as a transferee. He pointed out that the transferor, it [was] therefore unmistakably clear that [Andaya had] no
restriction did not appear in the bank's articles of incorporation, cause of action for mandamus against [the] bank."
bylaws, or certificates of stock. Consequently, Andaya directly filed with this Court a Rule 45
petition for review on certiorari assailing the RTC Decision on pure
The bank eventually denied the request of Andaya. It reasoned that questions of law.
he had a conflict of interest, as he was then president and chief ISSUE: Whether Andaya, as a transferee of shares of stock, may
executive officer of the Green Bank of Caraga, a competitor bank. initiate an action for mandamus compelling the Rural Bank
Respondent bank concluded that the purchase of shares was not in of Cabadbaran to record the transfer of shares in its stock and
good faith, and that the purchase "could be the beginning of a hostile transfer book, as well as issue new stock certificates in his name.
bid to take-over control of the [Rural Bank of Cabadbaran]." Citing
Gokongwei v. Securities and Exchange Commission, respondent
insisted that it may refuse to accept a competitor as one of its HELD: It is already settled jurisprudence that the registration of a
stockholders. It also maintained that Chute should have first offered transfer of shares of stock is a ministerial duty on the part of the
her shares to the other stockholders, as agreed upon during the 2001 corporation. Aggrieved parties may then resort to the remedy of
stockholders' meeting. mandamus to compel corporations that wrongfully or unjustifiably
refuse to record the transfer or to issue new certificates of stock. This
remedy is available even upon the instance of a bona fide transferee
Consequently, Andaya instituted an action for mandamus and who is able to establish a clear legal right to the registration of the
damages against the Rural Bank of Cabadbaran; its corporate transfer. This legal right inherently flows from the transferee's
secretary, Oraiz; and its legal counsel, Gonzalez. Petitioner sought to established ownership of the stocks, a right that has been recognized
compel them to record the transfer in the bank's stock and transfer by this Court as early as in Price v. Martin:
book and to issue new certificates of stock in his name. A person who has purchased stock, and who desires to be recognized
as a stockholder, for the purpose of voting, must secure a standing by
The RTC issued a Decision dismissing the complaint. Citing Porice having the transfer recorded upon the books. If the transfer is not
v. Alsons Cement Corporation the trial court ruled that Andaya had duly made upon request, he has, as his remedy, to compel it to be
no standing to compel the bank to register the transfer and issue made. (Emphases supplied)
Clearly, the right of a transferee/assignee to have stocks transferred judgment that will either order the bank to recognize the legitimacy
to his name is an inherent right flowing from his ownership of the of the transfer and petitioner's status as stockholder or to deny the
stocks. The Court had ruled in Rural Bank of Salinas, Inc. v. Court of legitimacy thereof.
Appeals that the corporation's obligation to register is ministerial,
citing Fletcher, to wit:
In contrast, at the crux of this petition are the registration of the
In transferring stock, the secretary of a corporation acts in purely transfer and the issuance of the corresponding stock certificates.
ministerial capacity, and does not try to decide the question of Requiring petitioner to register the transaction before he could
ownership. institute a mandamus suit in supposed abidance by the ruling in
The duty of the corporation to transfer is a ministerial one and if it Ponce was a palpable error. It led to an absurd, circuitous situation in
refuses to make such transaction without good cause, it may be which Andaya was prevented from causing the registration of the
compelled to do so by mandamus. transfer, ironically because the shares had not been registered. With
The Court further held in Rural Bank of Salinas that the only the logic resorted to by the RTC, transferees of shares of stock would
limitation imposed by Section 63 of the Corporation Code is when never be able to compel the registration of the transfer and the
the corporation holds any unpaid claim against the shares intended to issuance of new stock certificates in their favor. They would first be
be transferred. (Emphasis supplied; citations omitted) required to show the registration of the transfer in their names — the
ministerial act that is the subject of the mandamus suit in the first
Consequently, transferees of shares of stock are real parties in place. The trial court confuses the application of the dicta in Ponce,
interest having a cause of action for mandamus to compel the which is pertinent only to the issuance of new stock certificates, and
registration of the transfer and the corresponding issuance of stock not to the registration of a transfer of shares. As Ponce itself
certificates. provides, these two are entirely different events. The RTC's
anomalous reasoning cannot be given legal imprimatur by this Court.
We also rule that Andaya has been able to establish that he is a bona
fide transferee of the shares of stock of Chute. In proving this fact, he With regard to the requisite authorization from the transferor, the
presented to the RTC the following documents evidencing the sale: Court stresses that the concern in Ponce was rooted in whether or not
(1) a notarized Sale of Shares of Stocks showing Chute's sale of the alleged right of the petitioner therein to compel the issuance of
2,200 shares of stock to petitioner; (2) a Documentary Stamp Tax new stock certificates was clearly established. Reiterating the ruling
Declaration/Return (3) Capital Gains Tax Return; and (4) stock in Rivera v. FIorendo and Eager v. Bryan, the Court therein
certificates covering the subject shares duly endorsed by Chute. maintained that a mere endorsement of stock certificates by the
The existence, genuineness, and due execution of these documents supposed owners of the stock could not be the basis of an action for
have been admitted and remain undisputed. There is no doubt that mandamus in the absence of express instructions from them.
Andaya had the standing to initiate an action for mandamus to According to the Court, the reason behind this ruling was that the
compel the Rural Bank of Cabadbaran to record the transfer of shares corporation's duty and legal obligation therein were not so clear and
in its stock and transfer book and to issue new stock certificates in indisputable as to justify the issuance of the writ. The ambiguity of
his name. As the transferee of the shares, petitioner stands to be the alleged transferee's deed of undertaking with endorsement led the
benefited or injured by the judgment in the instant petition, a Court in Ponce to rule that mandamus would have issued had the
registered owner himself requested the registration of the transfer, or In its Decision7 dated July 20, 1994, the SEC granted Ting Ping's
had the person requesting the registration secured a special power of petition.
attorney from the registered owner.
In its Decision7 dated July 20, 1994, the SEC granted Ting Ping's
In the instant case, however, the submitted documents did not merely petition, ordering as follows:
consist of an endorsement. Rather, petitioner presented several WHEREFORE, in view of all the foregoing facts and circumstances,
undisputed documents, among which was respondent Oraiz's letter to judgment is hereby rendered.
Chute denying her request to transfer the stock standing in her name
in favor of Andaya. This letter clearly indicated that the registered A. Ordering [TCL and Teng] to record in the Books of the
owner herself had requested the registration of the transfer of shares Corporation the following shares:
of stock. There was therefore no sensible reason for the RTC to 1. 480 shares acquired by [Ting Ping] from [Chiu] per Deed of Sales
perfunctorily extract the pronouncement in Ponce and then disregard [sic] dated February 20, 1979;
it in the face of admitted facts in addition to the duly endorsed stock 2. 1,400 shares acquired by [Ting Ping] from [Teng Ching] per Deed
certificates. of Sale dated September 22, 1985; and
3. 1,440 shares acquired by [Ting Ping] from [Maluto] per Deed of
7. Anna Teng v. SEC; G. R. 184332; Feb 17, 2016 Assignment dated Sept 2, 1989 [sic].
FACTS: This case has its origin in G.R. No. 1297774 entitled TCL B. Ordering [TCL and Teng] to issue corresponding new certificates
Sales Corporation and Anna Teng v. Hon. Court of Appeals and Ting of stocks (sic) in the name of [Ting Ping].
Ping Lay. Herein respondent Ting Ping purchased 480 shares of TCL C. Ordering [TCL and Teng] to pay [Ting Ping] moral damages in
Sales Corporation (TCL) from Peter Chiu (Chiu) on February 2, the amount of One Hundred Thousand (P 100,000.00) Pesos and
1979; 1,400 shares on September 22, 1985 from his brother Teng Fifty Thousand (P 50,000.00) Pesos for attorney's fees.
Ching Lay (Teng Ching), who was also the president and operations
manager of TCL; and 1,440 shares from Ismaelita Maluto (Maluto) SO ORDERED.
on September 2, 1989.5 TCL and Teng appealed to the SEC en banc, which, in its Order
Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took dated June 11, 1996, affirmed the SEC decision with modification, in
over the management of TCL. To protect his shareholdings with that Teng was held solely liable for the payment of moral damages
TCL, Ting Ping on August 31, 1989 requested TCL's Corporate and attorney's fees.
Secretary, herein petitioner Teng, to enter the transfer in the Stock Not contented, TCL and Teng filed a petition for review with the
and Transfer Book of TCL for the proper recording of his CA, docketed as CA-G.R. SP. No. 42035. On January 31, 1997, the
acquisition. He also demanded the issuance of new certificates of CA, however, dismissed the petition for having been filed out of time
stock in his favor. TCL and Teng, however, refused despite repeated and for finding no cogent and justifiable grounds to disturb the
demands. Because of their refusal, Ting Ping filed a petition for findings of the SEC en banc. This prompted TCL and Teng to come
mandamus with the SEC against TCL and Teng, docketed as SEC to the Court via a petition for review on certiorari under Rule 45.
Case No. 3900.6
After the finality of the Court's decision, the SEC issued a writ of manifestation where she pointed out a discrepancy between the total
execution addressed to the Sheriff of the Regional Trial Court (RTC) shares of Maluto based on the annexes, which is only 1305 shares, as
of Manila. Teng, however, filed on February 4, 2004 a complaint for against the 1440 shares acquired by Ting Ping based on the SEC
interpleader with the RTC of Manila, Branch 46, docketed as Civil Order dated August 9, 2006.23
Case No. 02-102776, where Teng sought to compel Henry and Ting On May 25, 2007, the SEC denied the motions to quash filed by
Ping to interplead and settle the issue of ownership over the 1,400 Teng and TCL, and affinned its Order dated August 9, 2006.24
shares, which were previously owned by Teng Ching. Thus, the
deputized sheriff held in abeyance the further implementation of the Unperturbed, Teng filed a petition for certiorari and prohibition
writ of execution pending outcome of Civil Case No. 02-102776. under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
99836.25 The SEC, through the Office of the Solicitor General
On March 13, 2003, the RTC of Manila, Branch 46, rendered its (OSG), filed a Comment dated June 30, 2008,26 which,
Decision13 in Civil Case No. 02-102776, finding Henry to have a subsequently, Teng moved to expunge.27
better right to the shares of stock formerly owned by Teng Ching,
except as to those covered by Stock Certificate No. 011 covering On April 29, 2008, the CA promulgated the assailed decision
262.5 shares, among others. 14 dismissing the petition and denying the motion to expunge the SEC's
comment.28
Thereafter, an Ex Parte Motion for the Issuance of Alias Writ of
Execution15 was filed by Ting Ping where he sought the partial Hence, Teng filed the present petition
satisfaction of SEC en banc Order dated June 11, 1996 ordering TCL
and Teng to record the 480 shares he acquired from Chiu and the ISSUE: Whether the surrender of the certificates of stock is a
1,440 shares he acquired from Maluto, and for Teng's payment of the requisite before registration of the transfer may be made in the
damages awarded in his favor. corporate books and for the issuance of new certificates in its stead
Acting upon the motion, the SEC issued an Order16 dated August 9,
2006 granting partial enforcement and satisfaction of the Decision HELD: A certificate of stock is a written instrument signed by the
dated July 20, 1994, as modified by the SEC en banc's Order dated proper officer of a corporation stating or acknowledging that the
June 11, 1996.17 On the same date, the SEC issued an alias writ of person named in the document is the owner of a designated number
execution. 18
of shares of its stock. It is prima facie evidence that the holder is a
Teng and TCL filed their respective motions to quash the alias writ shareholder of a corporation. A certificate, however, is merely a
of execution, 19 which was opposed by Ting Ping, who also tangible evidence of ownership of shares of stock. It is not a stock in
expressed his willingness to surrender the original stock certificates the corporation and merely expresses the contract between the
of Chiu and Maluto to facilitate and expedite the transfer of the corporation and the stockholder. The shares of stock evidenced by
shares in his favor. Teng pointed out, however, that the annexes in said certificates, meanwhile, are regarded as property and the owner
Ting Ping's opposition did not include the subject certificates of of such shares may, as a general rule, dispose of them as he sees fit,
stock, surmising that they could have been lost or destroyed. unless the corporation has been dissolved, or unless the right to do so
Ting Ping belied this, claiming that his counsel Atty. Simon V. Lao is properly restricted, or the owner's privilege of disposing of his
already communicated with TCL's counsel regarding the surrender of shares has been hampered by his own action.
the said certificates of stock. 22 Teng then filed a counter
Section 63 of the Corporation Code prescribes the manner by which It is the delivery of the certificate, coupled with the endorsement by
a share of stock may be transferred. Said provision is essentially the the owner or his duly authorized representative that is the operative
same as Section 35 of the old Corporation Law, which, as held in act of transfer of shares from the original owner to the transferee.
Fleisher v. Botica Nolasco Co., defines the nature, character and The Court even emphatically declared. in Fil-Estate Golf and
transferability of shares of stock. Fleisher also stated that the Development, Inc., et al. v. Vertex Sales and Trading, Inc. that in "a
provision on the transfer of shares of stocks contemplates no sale of shares of stock, physical delivery of a stock certificate is one
restriction as to whom they may be transferred or sold. As owner of of the essential requisites for the transfer of ownership of the stocks
personal property, a shareholder is at liberty to dispose of them in purchased." The delivery contemplated in Section 63, however,
favor of whomsoever he pleases, without any other limitation in this pertains to the delivery of the certificate of shares by the transferor to
respect, than the general provisions of law. the transferee, that is, from the original stockholder named in the
Section 63 provides: certificate to the person or entity the stockholder was transferring the
Sec. 63. Certificate of stock and transfer of shares. - The capital shares to, whether by sale or some other valid form of absolute
stock of stock corporations shall be divided into shares for which conveyance of ownership. "[S]hares of stock may be transferred by
certificates signed by the president or vice president, countersigned delivery to the transferee of the certificate properly indorsed. Title
by the secretary or assistant secretary, and sealed with the seal of the may be vested in the transferee by the delivery of the duly indorsed
corporation shall be issued in accordance with the by-laws. Shares of certificate of stock."
stock so issued are personal property and may be transferred by It is thus clear that Teng's position - that Ting Ping must first
delivery of the certificate or certificates indorsed by the owner or his surrender Chiu's and Maluto's respective certificates of stock before
attorney-in-fact or other person legally authorized to make the the transfer to Ting Ping may be registered in the books of the
transfer. No transfer, however, shall be valid, except as between the corporation - does not have legal basis. The delivery or surrender
parties, until the transfer is recorded in the books of the corporation adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite
showing the names of the parties to the transaction, the date of the before the conveyance may be recorded in its books. To compel Ting
transfer, the number of the certificate or certificates and the number Ping to deliver to the corporation the certificates as a condition for
of shares transferred. the registration of the transfer would amount to a restriction on the
No shares of stock against which the corporation holds any unpaid right of Ting Ping to have the stocks transferred to his name, which
claim shall be transferable in the books of the corporation. (Emphasis is not sanctioned by law. The only limitation imposed by Section 63
and underscoring ours) is when the corporation holds any unpaid claim against the shares
intended to be transferred.
Under the provision, certain minimum requisites must be complied
with for there to be a valid transfer of stocks, to wit: (a) there must be Respondent Ting Ping Lay was able to establish prima facie
delivery of the stock certificate; (b) the certificate must be endorsed ownership over the shares of stocks in question, through deeds of
by the owner or his attorney-in-fact or other persons legally transfer of shares of stock of TCL Corporation. Petitioners could not
authorized to make the transfer; and (c) to be valid against third repudiate these documents. Hence, the transfer of shares to him must
parties, the transfer must be recorded in the books of the corporation. be recorded on the corporation's stock and transfer book.
In the same vein, Teng cannot refuse registration of the transfer on
the pretext that the photocopies of Maluto 's certificates of stock
submitted by Ting Ping covered only 1,305 shares and not 1,440. As In the case at bench, Ting Ping manifested from the start his
earlier stated, the respective duties of the corporation and its intention to surrender the subject certificates of stock to facilitate the
secretary to transfer stock are purely ministerial. registration of the transfer and for the issuance of new certificates in
Nevertheless, to be valid against third parties and the corporation, the his name. It would be sacrificing substantial justice if the Court were
transfer must be recorded or registered in the books of corporation. to grant the petition simply because Ting Ping is yet to surrender the
There are several reasons why registration of the transfer is subject certificates for cancellation instead of ordering in this case
necessary: one, to enable the transferee to exercise all the rights of a such surrender and cancellation, and the issuance of new ones in his
stockholder; two, to inform the corporation of any change in share name. 65
ownership so that it can ascertain the persons entitled to the rights On the other hand, Teng, and TCL for that matter, have already
and subject to the liabilities of a stockholder; and three, to avoid deterred for so long Ting Ping's enjoyment of his rights as a
fictitious or fraudulent transfers, among others. Upon registration of stockholder. As early as 1989, Ting Ping already requested Teng to
the transfer in the books of the corporation, the transferee may now enter the transfer of the subject shares in TCL's Stock and Transfer
then exercise all the rights of a stockholder, which include the right Book; in 2001, the Court, in G.R. No. 129777, resolved Ting Ping's
to have stocks transferred to his name. rights as a valid transferee and shareholder; in 2006, the SEC ordered
The manner of issuance of certificates of stock is generally regulated partial execution of the judgment; and in 2008, the CA affirmed the
by the corporation's by-laws. In Bitong v. CA,62 the Court outlined SEC's order of execution. The Court will not allow Teng and TCL to
the procedure for the issuance of new certificates of stock in the frustrate Ting Ping's rights any longer. Also, the Court will not dwell
name of a transferee: on the other issues raised by Teng as it becomes irrelevant in light of
the Court's disquisition.
First, the certificates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation. x x x Second, delivery of the 8. Jose A. Bernas v. Jovencio F. Cinco, G.R. Nos. 163356-
certificate is an essential element of its issuance. x x x Third, the par 57/163368-69; July 10, 2015
value, as to par value shares, or the full subscription as to no par FACTS: Makati Sports Club (MSC) is a domestic corporation duly
value shares, must first be fully paid. Fourth, the original certificate organized and existing under Philippine laws for the primary purpose
must be surrendered where the person requesting the issuance of a of establishing, maintaining, and providing social, cultural,
certificate is a transferee from a stockholder. recreational and athletic . activities among its members.
The surrender of the original certificate of stock is necessary before Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile
the issuance of a new one so that the old certificate may be cancelled. H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio
A corporation is not bound and cannot be required to issue a new T. Macrohon and Paulino T. Lim (Bernas Group) were among the
certificate unless the original certificate is produced and surrendered. Members of the Board of Directors and Officers of the corporation
Surrender and cancellation of the old certificates serve to protect not whose terms were to expire either in 1998 or 1999.
only the corporation but the legitimate shareholder and the public as
well, as it ensures that there is only one document covering a Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo Librea ·
particular share of stock. and Alex Y. Pardo (Cinco Group) are the members and stockholders
of the corporation who were elected Members of the Board of
Directors and Officers of the club during the 17 December 1997 including the removal of the sitting officers and the election of new
Special Stockholders Meeting. ones, be nullified.
The antecedent events of the meeting and its results, follow: For their part, the Cinco Group insisted that the 17 December 1997
Alarmed with the rumored anomalies in handling the corporate Special Stockholders' Meeting is sanctioned by the Corporation Code
funds, the MSC Oversight Committee (MSCOC), composed of the and the MSC by-laws. In justifying the call effected by the MSCOC,
past presidents of the club, demanded from the Bernas Group, who they reasoned that Section 258 of the MSC by-laws merely
were then incumbent officers of the corporation, to resign from their authorized the Corporate Secretary to issue notices of meetings and
respective positions to pave the way for the election of new set of nowhere does it state that such authority solely belongs to him. It
officers.4Resonating this clamor were the stockholders of the was further asseverated by the Cinco Group that it would be useless
corporation representing at least 100 shares who sought the to course the request to call a meeting thru the Corporate Secretary
assistance of the MSCOC to call for a special stockholders meeting because he repeatedly refused to call a special stockholders' meeting
for the purpose of removing the sitting officers and electing new despite demands and even "filed a suit to restrain the holding of a
ones.5 Pursuant to such request, the MSCOC called a Special special meeting.9
Stockholders' Meeting and sent out notices6 to all stockholders and Meanwhile, the newly elected directors initiated an investigation on
members stating therein the time, place and purpose of the meeting. the alleged anomalies in administering the corporate affairs and after
For failure of the Bernas Group to secure an injunction before the finding Bernas guilty of irregularities,10 the Board resolved to expel
Securities Commission (SEC), the meeting proceeded wherein Jose him from the club by selling his shares at public auction.11 After the
A. Bernas, Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. notice12 requirement was complied with, Bernas' shares was
Frondoso, Ignacio T. Macrohon, Jr. and Paulino T. Lim were accordingly sold for ₱902,000.00 to the highest bidder:
removed from office and, in their place and stead, Jovencio F. Cinco, Prior to the resolution of SEC Case No. 5840, an Annual
Ricardo G. Librea, Alex Y. Pardo, Roger T. Aguiling, Rogelio G. · Stockholders' Meeting was held on 20 April 1998 pursuant to Section
Villarosa, Armando David, Norberto Maronilla, Regina de Leon- 8 of the MSC bylaws.13 During the said meeting, which was
Herlihy and Claudio B. Altura, were elected.7 attended by 1,017 stockholders representing 2/3 of the outstanding
Aggrieved by the turn of events, the Bernas Group initiated an action shares, the majority resolved to approve, confirm and ratify, among
before the Securities Investigation and Clearing Department (SICD) others, the calling and · holding of 17 December 1997 Special
of the SEC docketed as SEC Case No. 5840 seeking for the Stockholders' Meeting, the acts and resolutions adopted therein
nullification of the 17 December 1997 Special Stockholders Meeting including the removal of Bernas Group from the Board and the
on the ground that it was improperly called. Citing Section 28 of the election of their replacements.14
Corporation Code, the Bernas Group argued that the authority to call Due to the filing of several petitions for and against the removal of
a meeting lies with the Corporate . Secretary and not with the the Bernas Group from the Board pending before the SEC resulting
MSCOC which functions merely as an oversight body and is not in the piling up of legal controversies involving MSC, the SEC En
vested with the power to call corporate meetings. For being called by Banc, in its Decision15 dated 30 March 1999, resolved to supervise
the persons not authorized to do so, the Bernas Group urged the SEC. the holding of the 1999 Annual Stockholders' Meeting. During the
to declare the 17 December 1997 Special Stockholders' Meeting, said meeting, the stockholders once again approved, ratified and
confirmed the holding of the 17 December 1997 Special special stockholders' meeting despite demand
Stockholders' Meeting.
The conduct of the 17 December 1997 Special Stockholders' Meeting ISSUE: WHETHER OR NOT THE HONORABLE COURT OF
was likewise ratified by the stockholders during the 2000 Annual APPEALS ERRED IN FAILING TO NULLIFY THE HOLDING
Stockholders' Meeting which was held on 17 April 2000.16 OF THE ANNUAL STOCKHOLDERS' MEETING
On 9 May 2000, the SICD rendered a Decision17 in SEC Case No.
12-. 97-5840 finding, among others, that the 17 December 1997 HELD: The Corporation Code laid down the rules on the removal of
Special Stockholders' Meeting and the Annual Stockholders' Meeting the Directors of the corporation by providing, inter alia, the persons
conducted on 20 April 1998 and 19 April 1999 are invalid. The authorized to call the meeting and the number of votes required for
SICD likewise nullified the expulsion of Bernas from the corporation the purpose of removal.
and the sale of his share at the public auction.
Textually, only the President and the Board of Directors are
On appeal, the SEC En Banc, in its 12 December 2000 Decision19 authorized by the by-laws to call a special meeting. In cases where
reversed the findings of the SICD and validated the holding of the 17 the person authorized to call a meeting refuses, fails or neglects to
December 1997 Special Stockholders' Meeting as well as the Annual call a meeting, then the stockholders representing at least 100 shares,
Stockholders' Meeting held on 20 April 1998 and 19 April 1999. upon written request, may file a petition to call a special
On 28 April 2003, the Court of Appeals rendered a Decision20 stockholder's meeting.
declaring the 17 December 1997 Special Stockholders' Meeting In the instant case, there is no dispute that the 17 December 1997
invalid for being improperly called but affirmed the actions taken Special Stockholders' Meeting was called neither by the President
during the Annual Stockholders' Meeting held on 20 April 1998, 19 nor by the Board of Directors but by the MSCOC. While the
April 1999 and 17 April 2000. MSCOC, as its name suggests, is created for the purpose of
In a Resolution21 dated 27 April 2004, the appellate court refused to overseeing the affairs of the corporation, nowhere in the by-laws
reconsider its earlier decision. does it state that it is authorized to exercise corporate powers, such as
Aggrieved by the disquisition of the Court of Appeals, both parties the power to call a special meeting, solely vested by law and the
elevated the case before this Court by filing their respective Petitions MSC by-laws on the President or the Board of Directors.
for Review on Certiorari. While the Bernas Group agrees with the
disquisition of the appellate court that the Special Stockholders' The board of directors is the directing and controlling body of the
Meeting is invalid for being called by the persons not authorized to corporation. It is a creation of the stockholders and derives its power
do so, they urge the Court to likewise invalidate the holding of the to control and direct the affairs of the corporation from them. The
subsequent Annual Stockholders' Meetings invoking the application board of directors, in drawing to itself the power of the corporation,
of the holdover principle. The Cinco Group, for its part, insists that occupies a position of trusteeship in relation to the stockholders, in
the holding. of 17 December 1997 Special Stockholders' Meeting is the sense that the board should exercise not only care and diligence,
valid and binding underscoring the overwhelming ratification made but utmost good faith in the management of the corporate affairs.23
by the stockholders during the subsequent annual stockholders'
meetings and the previous refusal of the Corporate Secretary to call a The underlying policy of the Corporation Code is that the business
and affairs of a corporation must be governed by a board of directors
whose members have stood for election, and who have actually been Relative to the powers of the Board of Directors, nowhere in the
elected by the stockholders, on an annual basis. Only in that way can Corporation Code or in the MSC by-laws can it be gathered that the
the continued accountability to shareholders, and the legitimacy of Oversight Committee is authorized to step in wherever there is
their decisions that bind the corporation's stockholders, be assured. breach of fiduciary duty and call a special meeting for the purpose of
The shareholder vote is critical to the theory that legitimizes the removing the existing officers and electing their replacements even if
exercise of power by the directors or officers over the properties that such call was made upon the request of shareholders. Needless to
they do not own. say, the MSCOC is neither · empowered by law nor the MSC by-
Even the Corporation Code is categorical in stating that a corporation laws to call a meeting and the subsequent ratification made by the
exercises its powers through its board of directors and/or its duly stockholders did not cure the substantive infirmity, the defect having
authorized officers and agents, except in instances where the set in at the time the void act was done. The defect goes into the very
Corporation Code requires stockholders' approval for certain specific authority of the persons who made the call for the meeting. It is apt
acts: to recall that illegal acts of a corporation which contemplate the
doing of an act which is contrary to law, morals or public order, or
SEC. 23. The Board of Directors or Trustees. - Unless otherwise contravenes some rules of public policy or public duty, are, like
provided in this Code, the corporate powers of all the corporations similar transactions between individuals, void. They cannot serve as
formed under this Code shall be exercised, all business conducted basis for a court action, nor acquire validity by performance,
and all property of such corporations controlled and held by the ratification or estoppel. The same principle can apply in the present
board of directors and trustees x x x. case. The void election of 17 December 1997 cannot be ratified by
A corporation's board of directors is understood to be that body the subsequent Annual Stockholders' Meeting.
which (1) exercises all powers provided for under the Corporation A distinction should be made between corporate acts or contracts
Code; (2) conducts all business of the corporation; and (3) controls which are illegal and those which are merely ultra vires. The former
and holds all the property of the corporation. Its members have been contemplates the doing of an act which are contrary to law, morals or
characterized as trustees or directors clothed with fiduciary character. public policy or public duty, and are, like similar transactions
It is ineluctably clear that the fiduciary relation is between the between individuals, void: They cannot serve as basis of a court
stockholders and the board of directors and who are vested with the action nor acquire validity by performance, ratification or estoppel.
power to manage the affairs of the corporation. The ordinary trust Mere ultra vires acts, on the other hand, or those which are not illegal
relationship of · directors of a corporation and stockholders is not a or void ab initio, but are not merely within the scope of the articles of
matter of statutory or technical law. It springs from the fact that incorporation, are merely voidable and may become binding and
directors have the control and guidance of corporate affairs and enforceable when ratified by the stockholders. The 17 December
property and hence of the property interests of the stockholders. 1997 Meeting belongs to the category of the latter, that is, it is void
Equity recognizes that stockholders are the proprietors of the ab initio and cannot be validated.
corporate interests and are ultimately the only beneficiaries thereof. Consequently, such Special Stockholders' Meeting called by the
Should the board fail to perform its fiduciary duty to safeguard the Oversight Committee cannot have any legal effect. The removal of
interest of the stockholders or commit acts prejudicial to their the Bernas Group, as well as the election of the Cinco Group,
interest, the law and the by-laws provide mechanisms to remove and effected by the assembly in that improperly called meeting is void,
replace the erring director. and since the Cinco Group has no legal right to sit in the board, their
subsequent acts of expelling Bernas from the club and the selling of third persons who acquired the shares of Bernas and such third
his shares. at the public auction, are likewise invalid. persons cannot be deemed as buyer in good faith.
The Cinco Group cannot invoke the application of de facto The case would have been different if the petitioning stockholders
officership doctrine to justify the actions taken after the invalid went directly to the SEC and sought its assistance to call a special
election since the operation of the principle is limited to third persons stockholders' meeting citing the previous refusal of the Corporate
who were originally not part of the corporation but became such by Secretary to call a meeting. Where there is an officer authorized to
reason of voting of government-sequestered shares.33 In Cojuangco call a meeting and that officer refuses, fails, or neglects to call a
v. Roxas,34the Court deemed the directors who were elected through meeting, the SEC can assume jurisdiction and issue an order to the
the voting of government of sequestered shares who assumed office petitioning stockholder to call a meeting pursuant to its regulatory
in good faith as de facto officers, viz: and administrative powers to implement the Corporation Code.
In the light of the foregoing discussion, the Court finds and so holds Whenever, for any cause, there is no person authorized to call a
that the PCGG has no right to vote the sequestered shares of meeting, the Securities and Exchange Commission, upon petition of
petitioners including the sequestered corporate shares. Only their a stockholder or member, and on a showing of good cause therefore,
owners, duly authorized representatives or proxies may vote the said may issue an order to the petitioning stockholder or member
shares. Consequently, the election of private respondents Adolfo directing him to call a meeting of the corporation by giving proper
Azcuna, Edison Coseteng and Patricio Pineda as members of the notice required by this Code or by the by-laws. The petitioning
board of directors of SMC for 1990-1991 should be set aside. stockholder or member shall preside thereat until at least majority of
However, petitioners cannot be declared as duly elected members of the stockholders or members present have chosen one of their
the board of directors thereby. An election for the purpose should be member[s] as presiding officer.
held where the questioned shares may be voted by their owners On the showing of good cause therefore, the court may authorize a
and/or their proxies. Such election may be held at the next stockholder to call a meeting and to preside thereat until the majority
shareholders' meeting in April 1991 or at such date as may be set stockholders representing a majority of the stock present and
under the by-laws of SMC. permitted to be voted shall have chosen one among them to preside
Private respondents in both cases are hereby declared to be de facto it. And this showing of good cause therefor exists when the court is
officers who in good faith assumed their duties and responsibilities apprised of the fact that the by-laws of the corporation require the
as duly elected members of the board of directors of the SMC. They calling of a general meeting of the stockholders to elect the board of
are thereby legally entitled to emoluments of the office including directors but the call for such meeting has not been done.
salary, fees and other compensation attached to the office until they SEC's assumption of jurisdiction over this case is proper, as the
vacate the same. (Emphasis supplied) controversy involves the election of PNCC's directors. Petitioner
Apparently, the assumption of office of the Cinco Group did not bear does not really contradict the nature of the question presented and
parallelism with the factual milieu in Cojuangco and as such they agrees that there is an intra-corporate question involved.
cannot be considered as de facto officers and thus, they are without Prescinding from the above premises, it necessarily follows that SEC
colorable authority to authorize the removal of Bernas and the sale of can compel PNCC to hold a stockholders' meeting for the purpose of
his shares at the public auction. They cannot bind the corporation to electing members of the latter's board of directors.
Needless to say, the conduct of SEC supervised Annual Stockholders On February 23, 2004, petitioners moved for the dismissal of the
Meeting gave rise to the presumption that the corporate officers who petition on the following grounds: 1) the petition states no cause of
won the election were duly elected to their positions and therefore action; 2) the petition should be dismissed on account of litis
can be rightfully considered as de jure officers. As de jure officials, pendentia; 3) the petition is a nuisance or harassment suit; and 4) the
they can lawfully exercise functions and legally perform such acts petition should be dismissed on account of improper venue.
that are within the scope of the business of the corporation except
ratification of actions that are deemed void from the beginning. On April 14, 2004, the RTC issued an Order granting PASAR's
Considering that a new set of officers were already duly elected in prayer for a writ of preliminary injunction. The RTC held that the
1998 and 1999 Annual Stockholders Meetings, the Bernas Group right to inspect book should not be denied to the stockholders,
cannot be permitted to use the holdover principle as a shield to however, the same may be restricted. The right to inspect should be
perpetuate in office. Members of the group had no right to continue limited to the ordinary records as identified and classified by
as directors of the corporation unless reelected by the stockholders in PASAR. Thus, pending the determination of which records are
a meeting called for that purpose every year. They had no right to confidential or inexistent, the petitioners should be enjoined from
hold-over brought about by the failure to perform the duty incumbent inspecting the books.
upon them. If they were sure to be reelected, why did they fail,
neglect, or refuse to call the meeting to elect the members of the On May 26, 2004, petitioners filed a Motion for Dissolution of the
board? Writ of Preliminary Injunction on the ground that the petition is
insufficient. Petitioners claim that the enforcement of the right to
inspect book should be on the stockholders and not on PASAR.
9. Philippine Associated Smelting and Refining Corporation vs. Petitioners further claim that no irreparable injury is caused to
Lim, 804 SCRA 600, G.R. No. 172948 October 5, 2016 PASAR which justifies the issuance of the writ of preliminary
FACTS: Philippine Associated Smelting and Refining Corporation injunction.
(hereafter PASAR) is a corporation duly organized and existing
under the laws of the Philippines and is engaged in copper smelting On January 10, 2005, the RTC issued the assailed Order, denying the
and refining. Motion to Dismiss filed by petitioners on the ground that it is a
prohibited pleading under Section 8, Rule 1 of the Interim Rules on
On the other hand, Pablito Lim, Manuel Agcaoili and Consuelo Intra-Corporate Controversies under the Securities Regulation Code
Padilla (collectively referred to as petitioners) were former senior (RA 8799). The Motion for Dissolution of the Writ of Preliminary
officers and presently shareholders of PASAR holding 500 shares Injunction was likewise denied on the ground that the writ does not
each. completely result in unjust denial of petitioners' right to inspect the
books of the corporation. The RTC further stated that if no
An Amended Petition for Injunction and Damages with prayer for preliminary injunction is issued, petitioners may, before final
Preliminary Injunction and/or Temporary Restraining Order, dated judgment, do the act which PASAR is seeking the Court to restrain
February 4, 2004 was filed by PASAR seeking to restrain petitioners which will make ineffectual the final judgment that it may afterward
from demanding inspection of its confidential and inexistent records. render.
Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of good faith or for a legitimate purpose. Respondents, however, have
Appeals a Petition for Certiorari8questioning the propriety of the no legitimate purpose in this case. If respondents gain access to
writ of preliminary injunction. The Court of Appeals held that there petitioner's confidential records, petitioner's trade secrets and other
was no basis to issue an injunctive writ, thus: confidential information will be used by its former officers to give
undue commercial advantage to third parties. Petitioner insists that to
We agree. The act of PASAR in filing a petition for injunction with hold that objections to the right of inspection can only be raised in an
prayer for writ of preliminary injunction is uncalled for. The petition action for mandamus brought by the stockholder, would leave a
is a pre-emptive action unjustly intended to impede and restrain the corporation helpless and without an adequate legal remedy. To leave
stockholders' rights. If a stockholder demands the inspection of the corporation helpless negates the doctrine that where there is a
corporate books, the corporation could refuse to heed to such right, there is a remedy for its violation.
demand. When the corporation, through its officers, denies the
stockholders of such right, the latter could then go to court and Petitioner argues that it has the right to protect itself against all forms
enforce their rights. It is then that the corporation could set up its of embarrassment or harassment against its officers, including the
defenses and the reasons for the denial of such right. Thus, the proper filing of criminal cases against them. Moreover, respondents' request
remedy available for the enforcement of the right of inspection is for inspection of confidential corporate records and documents
undoubtedly the writ of mandamus to be filed by the stockholders violates and breaches petitioner's right to peaceful and continuous
and not a petition for injunction filed by the corporation. possession of its confidential records and documents.

The Order of the RTC shows that indeed there is no basis for the Petitioner further argues that respondents' Motion for Dissolution
issuance not only of the temporary but also of the permanent before the Court of Appeals did not comply with Rule 58, Section 6
injunctive writ. The Order dated April 14, 2004 states: of the Rules of Court. Therefore, the Motion should not have been
granted. Likewise, respondents' Motion to Dismiss is a prohibited
"In the present case, PASAR failed to present sufficient evidence to pleading under Rule 1, Section 8 of the Interim Rules of Procedure
show that respondents' (petitioners') demand to inspect the corporate Governing Intra-Corporate Controversies and should not have been
records was not made in good faith nor for a lawful purpose. . . . granted. In any case, the Court of Appeals should have remanded the
PASAR is reminded that it is its burden to prove that respondents' case to the trial court for further disposition.
action in seeking examination of the corporate records was moved by
unlawful or ill-motivated designs which could appropriately call for ISSUE: Whether injunction properly lies to prevent respondents
a judicial protection against the exercise of such right[.]" from invoking their right to inspect.

Court denied petitioner's prayer for the issuance of a temporary HELD: The right to inspect under Section 74 of the Corporation
restraining order and required respondents Lim, Agcaoili, and Padilla Code is subject to certain limitations. However, these limitations are
to comment on the Petition. expressly provided as defenses in actions filed under Section 74.
Thus, this Court has held that a corporation's objections to the right
Petitioner argues that the right of a stockholder to inspect corporate to inspect must be raised as a defense:
books and records is limited in that and demand must be made in
2) the person demanding to examine and copy excerpts from the days but not more than five (5) years, or both, in the discretion of the
corporation's records and minutes has not improperly used any court. If the violation is committed by a corporation, the same may,
information secured through any previous examination of the records after notice and hearing, be dissolved in appropriate proceedings
of such corporation; and 3) the demand is made in good faith or for a before the Securities and Exchange Commission: Provided, That
legitimate purpose. The latter two limitations, however, must be set such dissolution shall not preclude the institution of appropriate
up as a defense by the corporation if it is to merit judicial action against the director, trustee or officer of the corporation
cognizance. As such, and in the absence of evidence, the PCGG responsible for said violation: Provided, further, That nothing in this
cannot unilaterally deny a stockholder from exercising his statutory section shall be construed to repeal the other causes for dissolution of
right of inspection based on an unsupported and naked assertion that a corporation provided in this Code.
private respondent's motive is improper or merely for curiosity or on
the ground that the stockholder is not in friendly terms with the In this case, petitioner invokes its right to raise the limitations
corporation's officers. provided under Section 74 of the Corporation Code. However,
petitioner provides scant legal basis to claim this right because it
In general, however, officers and directors have no legal authority to does not raise the limitations as a matter of defense. As properly
close the office doors against shareholders for whom they are only appreciated by the Court of Appeals:
agents, and withhold from them the right to inspect the books which
furnishes the most effective method of gaining information which the We agree. The act of PASAR in filing a petition for injunction with
law has provided, on mere doubt or suspicion as to the motives of the prayer for writ of preliminary injunction is uncalled for. The petition
shareholder. While there is some conflict of authority, when an is a pre-emptive action unjustly intended to impede and restrain the
inspection by a shareholder is contested, the burden is usually held to stockholders' rights. If a stockholder demands the inspection of
be upon the corporation to establish a probability that the applicant is corporate books, the corporation could refuse to heed to such
attempting to gain inspection for a purpose not connected with his demand. When the corporation, through its officers, denies the
interests as a shareholder, or that his purpose is otherwise improper. stockholders of such right, the latter could then go to court and
The burden is not upon the petitioner to show the propriety of his enforce their rights. It is then that the corporation could set up its
examination or that the refusal by the officers or directors was defenses and the reasons for the denial of such right. Thus, the proper
wrongful, except under statutory provisions. remedy available for the enforcement of the right of inspection is
undoubtedly the writ of mandamus to be filed by the stockholders
Among the actions that may be filed is an action for specific and not a petition for injunction filed by the corporation.
performance, damages, petition for mandamus, or for violation of
Section 74, in relation to Section 144 of the Corporation Code, which The clear provision in Section 74 of the Corporation Code is
provides: sufficient authority to conclude that an action for injunction and,
SECTION 144. Violations of the Code. — Violations of any of the consequently, a writ of preliminary injunction filed by a corporation
provisions of this Code or its amendments not otherwise specifically is generally unavailable to prevent stockholders from exercising their
penalized therein shall be punished by a fine of not less than one right to inspection. Specifically, stockholders cannot be prevented
thousand (P1,000.00) pesos but not more than ten thousand from gaining access to the (a) records of all business transactions of
(P10,000.00) pesos or by imprisonment for not less than thirty (30) the corporation; and (b) minutes of any meeting of stockholders or
the board of directors, including their various committees and Thus, respondents prayed for: (1) the restoration of their membership
subcommittees. to ALRAI; (2) petitioners to stop selling the donated lands and to
annul the titles transferred to Javonillo, Armentano, Dela Cruz,
10. Agdao Landless Residents Association, Inc. vs. Maramion, Alcantara and Loy; (3) the production of the accounting books of
806 SCRA 74, G.R. Nos. 188642; 189425, G.R. Nos. 188888-89 ALRAI and receipts of payments from ALRAI's members; (4) the
October 17, 2016 accounting of the fees paid by ALRAI's members; and (5) damages.

The RTC treated the case as an intra-corporate dispute.29 It found

FACTS: Dakudao & Sons, Inc. (Dakudao) executed six Deeds of respondents to be bona fidemembers of ALRAI.30 Being bona fide
Donation in favor of ALRAI covering 46 titled lots (donated lots). members, they are entitled to notices of meetings held for the
One Deed of Donation prohibits ALRAI, as donee, from partitioning purpose of suspending or expelling them from ALRAI.31 The court
or distributing individual certificates of title of the donated lots to its a quo however found that respondents were expelled without due
members, within a period of five years from execution, unless a process.32 It also annulled all transfers of the donated lots because
written authority is secured from Dakudao. A violation of the these violated the five-year prohibition under the Deeds of
prohibition will render the donation void, and title to and possession Donation.33 It also found Loy a purchaser in bad faith.
of the donated lot will revert to Dakudao. The other five Deeds of
Donation do not provide for the five-year restriction. Both Loy and petitioners filed separate appeals with the CA. The CA
affirmed with modification the court a quo's Decision. Petitioners
In the board of directors and stockholders meetings held on January who are members of ALRAI may inspect all the records and books
5, 2000 and January 9, 2000, respectively, members of ALRAI of accounts of ALRAI and demand accounting of its funds in
resolved to directly transfer 10 of the donated lots to individual accordance with Section 1, Article VII and Section 6, Article V of
members and non¬ members of ALRAI. Respondents filed a ALRAI's Constitution and By-Laws.
Complaint15 against petitioners. Respondents alleged that petitioners
expelled them as members of ALRAI, and that petitioners are The CA also noted that among the donated lots transferred, only one
abusing their powers as officers. Respondents further alleged that transferred to Alcantara] was covered by the five-year prohibition.
petitioners were engaged in the following anomalous and illegal acts: Although petitioners attached to their Memorandum dated November
(1) requiring ALRAI's members to pay exorbitant arrear fees when 19, 2007 a Secretary's Certificate of Dakudao resolving to remove
ALRAI's By-Laws only set membership dues at P1.00 per month;17 the restriction from the land covered by TCT No. T-41367, the CA
(2) partially distributing the lands donated by Dakudao to some did not take this certificate into consideration because petitioners
officers of ALRAI and to some non-members in violation of the never mentioned its existence in any of their pleadings before the
Deeds of Donation;18 (3) illegally expelling them as members of court a quo. Thus, without the required written authority from the
ALRAI without due process;19 and (4) being unable to show the donor, the CA held that the disposition of the land covered by TCT
books of accounts of ALRAI. They also alleged that Loy (who No. T-41367 is prohibited and the land's subsequent registration
bought one of the donated lots from Alcantara) was a buyer in bad under TCT No. T-322971 is void.46chanrobleslaw
faith, having been aware of the status of the land when she bought it.
However, the CA nullified the transfers made to Javonillo and members of ALRAI. Both courts found that in terminating
Armentano because these transfers violated Section 6 of Article IV respondents from ALRAI, petitioners deprived them of due process.
of the ALRAI Constitution. Section 6 prohibits directors from
receiving any compensation, except for per diems, for their services
to ALRAI.47 The CA upheld the validity of the transfers to Dela Section 9158 of the Corporation Code of the Philippines
Cruz and Alcantara48 because the ALRAI Constitution does not (Corporation Code)59 provides that membership in a non-stock, non-
prohibit the same. The CA held that as a consequence, the profit corporation (as in petitioner ALRAI in this case) shall be
subsequent transfer of the lot covered by TCT No. T-41366 to Loy terminated in the manner and for the cases provided in its articles of
from Alcantara was also valid.49chanrobleslaw incorporation or the by-laws.

Both parties filed separate motions for reconsideration with the CA In tum, Section 5, Article II of the ALRAI Constitution60 states:
but these were denied in a Resolution. Thus, the parties filed separate
petitions for review on certiorari under Rule 45 of the Rules of Court
with this Court. Sec. 5. - Termination of Membership - Membership may be lost in
any of the following: a) Delinquent in the payment of monthly dues;
ISSUES: b) failure to [attend] any annual or special meeting of the association
1. Whether respondents should be reinstated as members of for three consecutive times without justifiable cause, and c)
ALRAI; and expulsion may be exacted by majority vote of the entire members, on
2. Whether the transfers of the donated lots are valid. causes which herein enumerated: 1) Act and utterances which are
derogatory and harmful to the best interest of the association; 2)
HELD: Failure to attend any annual or special meeting of the association for
six (6) consecutive months, which shall be construed as lack of
I. Legality of respondents' termination interest to continue his membership, and 3) any act to conduct which
are contrary to the objectives, purpose and aims of the association as
Petitioners argue that respondents were validly dismissed for embodied in the charter[.]61
violation of the ALRAI Constitution particularly for non-payment of
membership dues and absences in the meetings.
Petitioners allege that the membership of respondents in ALRAI was
Petitioners' argument is without merit. We agree with the CA's terminated due to (a) non-payment of membership dues and (b)
finding that respondents were illegally dismissed from ALRAI. failure to consecutively attend meetings.62 However, petitioners
failed to substantiate these allegations. In fact, the court a quo found
The court a quo held that respondents are bona fide members of
that respondents submitted several receipts showing their compliance
ALRAL55 This finding was not disturbed by the CA because it was
with the payment of monthly dues.63 Petitioners likewise failed to
not raised as an issue before it and thus, is binding and conclusive on
prove that respondents' absences from meetings were without any
the parties and upon this Court.56 In addition, both the court a quo
justifiable grounds to result in the loss of their membership in
and the CA found that respondents were illegally removed as
ALRAI.
Even assuming that petitioners were able to prove these allegations, At the onset, we find that the cause of action and the reliefs sought in
the automatic termination of respondents' membership in ALRAI is the complaint pertaining to the donated lands (ALRAI's corporate
still not warranted. As shown above, Section 5 of the ALRAI property) strictly call for the filing of a derivative suit, and not an
Constitution does not state that the grounds relied upon by petitioners individual suit which respondents filed.
will cause the automatic termination of respondents' membership. Individual suits are filed when the cause of action belongs to the
Neither can petitioners argue that respondents' memberships in A stockholder personally, and not to the stockholders as a group, or to
LRAI were terminated under letter (c) of Section 5, to wit: the corporation, e.g. denial of right to inspection and denial of
x x x c) expulsion may be exacted by majority vote of the entire dividends to a stockholder. If the cause of action belongs to a group
members, on causes which herein enumerated: 1) Act and utterances of stockholders, such as when the rights violated belong to preferred
which are derogatory and harmful to the best interest of the stockholders, a class or representative suit may be filed to protect the
association; 2) Failure to attend any annual or special meeting of the stockholders in the group.
association for six (6) consecutive months, which shall be construed
as lack of interest to continue his membership, and 3) any act to
conduct which are contrary to the objectives, purpose and aims of the A derivative suit, on the other hand, is one which is instituted by a
association as embodied in the charter; x x shareholder or a member of a corporation, for and in behalf of the
corporation for its protection from acts committed by directors,
Although termination of membership from ALRAI may be made by trustees, corporate officers, and even third persons. The whole
a majority of the members, the court a quo found that the "guideline purpose of the law authorizing a derivative suit is to allow the
(referring to Section 2, Article III of the ALRAI Constitution) was stockholders/members to enforce rights which are derivative
not followed, hence, complainants' ouster from the association was (secondary) in nature, i.e., to enforce a corporate cause of action.
illegally done."65 The court a quo cited Section 2, Article III of the
ALRAI Constitution which provides, thus:
In a strict sense, the first cause of action, and:the reliefs sought,
should have been brought through a derivative suit. The first cause of
Sec. 2. -Notice- The Secretary shall give or cause to be given written action pertains to the corporate right of ALRAI involving its
notice of all meetings, regular or special to all members of the corporate properties which it owned by virtue of the Deeds of
association at least three (3) days before the date of each meetings Donation. In derivative suits, the real party-in-interest is the
either by mail or personally. Notice for special meetings shall specify corporation, and the suing stockholder is a mere nominal party.84 A
the time and the purposes or purpose for which it was called; x x x derivative suit, therefore, concerns "a wrong to the corporation
66 itself."
However, we liberally treat this case (in relation to the cause of
II. On the validity of the donated lots action pertaining to ALRAI's corporate properties) as one pursued by
the corporation itself, for the following reasons.
We modify the decision of the CA. First, the court a quo has jurisdiction to hear and decide this
controversy. Republic Act No. 8799,86 in relation to Section 5 of
Presidential Decree No. 902-A,87 vests the court a quo with original In any case, the suit is for the benefit of Commart itself, for a
and exclusive jurisdiction to hear and decide cases. judgment in favor of the complainants will necessarily mean
recovery by the corporation of the US$2.5 million alleged to have
been diverted from its coffers to the private bank accounts of its top
The reliefs sought show that the complaint was filed ultimately to managers and directors. Thus, the prayer in the Amended Complaint
curb the alleged mismanagement of ALRAI's corporate properties. In is for judgment ordering respondents x x x, "to account for and to,
this case, the reliefs sought do not entail the premature distribution of turn over or deliver to the Corporation" the aforesaid sum, with legal
corporate assets. On the contrary, the reliefs seek to preserve them interest, and "ordering all the respondents, as members of the Board
for the corporate interest of ALRAI. Clearly then, any benefit that of Directors to take such remedial steps as would protect the
may be recovered is accounted for, not in favor of respondents, but corporation from further depredation of the funds and property."94
for the corporation, who is the real party-in-interest Therefore, the
occasion for the strict application of the rule that a derivative suit
should be brought in order to protect and vindicate the interest of the Fourth, based on the records, we find that there is substantial
corporation does not obtain under the circumstances of this case. compliance with the requirements of a derivative suit,
a) [T]he party bringing suit should be a shareholder as of the time of
Commart (Phils.), Inc. v. Securities and Exchange Commission the act or transaction complained of, the number of his shares not
(SEC)93 upholds the same principle. In that case, the chairman and being material;
board of directors of Commart were sued for diverting into their
private accounts amounts due to Commart as commissions. b) [H]e has tried to exhaust intra-corporate remedies, i.e., has made a
Respondents argued that the Hearing Panel of the SEC should demand on the board of directors for the appropriate relief but the
dismiss the case·on the ground that it has no jurisdiction over the latter has failed or refused to heed his plea; and cralawlawlibrary
matter because the case is not a derivative suit The Hearing Panel
denied the motion, and was affirmed by the SEC. Upon appeal, this
Court affirmed the decision of the SEC, to wit: c) [T]he cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.
The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9
under First Cause of Action, readily shows that it avers the diversion
of corporate income into the private bank accounts of petitioner x x x Here, the court a quo found that respondents are bona fide members
and his wife. Likewise, the principal relief prayed for in the of ALRAI.96 As for the second requisite, respondents also have tried
complaint is the recovery of a sum of money in favor of the to demand appropriate relief within the corporation, but the demand
corporation. This being the case, the complaint is definitely a was unheeded.
derivative suit. xxx
xxx
We note that respondents' demand on Armentano substantially
complies with the second requirement. While it is true that the
complaining stockholder must show that he has exhausted all the
means within his reach to attain within the corporation the redress for whether the Resolution was indeed voted by the required percentage
his grievances, demand is unnecessary if the exercise will result in of membership. In fact, respondents take exception to the credibility
futility.98 Here, after respondents demanded Armentano to justify of the signatures of the persons who voted in the Resolution. They
the transfer of ALRAI's properties to the individual petitioners, argue that, "from the alleged 134 signatures, 24 of which are non-
respondents were expelled from the corporation, which termination members, 4 of which were signed twice under different numbers, and
we have already ruled as invalid. To our mind, the threat of 27 of which are apparently proxies unequipped with the proper
expulsion against respondents is sufficient to forestall any authorization. Obviously, on such alleged general membership
expectation of further demand for relief from petitioners. Ultimately, meeting the majority of the entire membership was not attained."
to make an effort to demand redress within the corporation will only
result in futility, rendering the exhaustion of other remedies
unnecessary. Second, there is also no showing that there was full disclosure of the
adverse interest of the directors involved when the Resolution was
approved. Full disclosure is required under the aforecited Section 32
Finally, the third requirement for the institution of a derivative suit is of the Corporation Code.
clearly complied with. As discussed in the previous paragraphs, the
cause of action and the reliefs sought ultimately redound to the
benefit of ALRAI. In this case, and as in a proper derivative suit, Third, Section 32 requires that the contract be fair and reasonable
ALRAI is the party-in-interest and respondents are merely nominal under the circumstances. As previously discussed, we find that the
parties. transfer of the corporate properties to the individual petitioners is not
fair and reasonable for (1) want of legitimate corporate purpose, and
for (2) the breach of the fiduciary nature of the positions held by
In view of the foregoing, and considering further the interest of Javonillo and Armentano. Lacking any of these (full disclosure and a
justice, and the length of time that this case has been pending, we showing that the contract is fair and reasonable), ratification by the
liberally treat this case as one pursued by the corporation to protect two-thirds vote would be of no avail.
its corporate rights.
In view of the foregoing, we rule that the transfers of ALRAI's
Here, we note that Javonillo, as a director, signed the Board corporate properties to Javonillo, Armentano, Dela Cruz, Alcantara
Resolutions133 confirming the transfer of the corporate properties to and Loy are void.
himself, and to Armentano. Petitioners cannot argue that the transfer
of the corporate properties to them is valid by virtue of the
Resolution134 by the general membership of ALRAI confirming the 11.Aguirre II vs. FQB+7, Inc., 688 SCRA 242, G.R. No. 170770
transfer for three reasons. January 9, 2013

FACTS: On October 5, 2004, Vitaliano filed, in his individual

First, as cited, Section 32 requires that the contract should be ratified capacity and on behalf of FQB+7, Inc. (FQB+7), a Complaint4for
by a vote representing at least two-thirds of the members in a intra-corporate dispute, injunction, inspection of corporate books and
meeting called for the purpose. Records of this case do not show
records, and damages, against respondents Nathaniel D. Bocobo Complaint asked for an injunction against them and for the
(Nathaniel), Priscila D. Bocobo (Priscila), and Antonio De Villa nullification of all their previous actions as purported directors,
(Antonio). The Complaint alleged that FQB+7 was established in including the GIS they had filed with the SEC. The Complaint also
1985 with the following directors and subscribers, as reflected in its sought damages for the plaintiffs and a declaration of Vitaliano’s
Articles of Incorporation. right to inspect the corporate records.

To Vitaliano’s knowledge, except for the death of Francisco Q. ISSUE: W/N intra-corporate disputes remain even when the
Bocobo and Alfredo Torres, there has been no other change in the corporation is dissolved.
above listings.
The Complaint further alleged that, sometime in April 2004, HELD:
Vitaliano discovered a General Information Sheet (GIS) of FQB+7,
dated September 6, 2002, in the Securities and Exchange On the dismissal of the Complaint for lack of jurisdiction.
Commission (SEC) records. This GIS was filed by Francisco Q.
Bocobo’s heirs, Nathaniel and Priscila, as FQB+7’s president and The CA held that the trial court does not have jurisdiction over an
secretary/treasurer, respectively. intra-corporate dispute involving a dissolved corporation. It further
held that due to the corporation’s dissolution, the qualifications of
Further, the GIS reported that FQB+7’s stockholders held their the respondents can no longer be questioned and that the dissolved
annual meeting on September 3, 2002.10 corporation must now commence liquidation proceedings with the
The substantive changes found in the GIS, respecting the respondents as its directors and officers.
composition of directors and subscribers of FQB+7, prompted
Vitaliano to write to the "real" Board of Directors (the directors The CA’s ruling is founded on the assumptions that intra-corporate
reflected in the Articles of Incorporation), represented by Fidel N. controversies continue only in existing corporations; that when the
Aguirre (Fidel). In this letter11 dated April 29, 2004, Vitaliano corporation is dissolved, these controversies cease to be intra-
questioned the validity and truthfulness of the alleged stockholders corporate and need no longer be resolved; and that the status quo in
meeting held on September 3, 2002. He asked the "real" Board to the corporation at the time of its dissolution must be maintained. The
rectify what he perceived as erroneous entries in the GIS, and to Court finds no basis for the said assumptions.
allow him to inspect the corporate books and records. The "real" Intra-corporate disputes remain even when the corporation is
Board allegedly ignored Vitaliano’s request. dissolved.
On September 27, 2004, Nathaniel, in the exercise of his power as Jurisdiction over the subject matter is conferred by law. R.A. No.
FQB+7’s president, appointed Antonio as the corporation’s attorney- 879945 conferred jurisdiction over intra-corporate controversies on
in-fact, with power of administration over the corporation’s farm in courts of general jurisdiction or RTCs, to be designated by the
Quezon Province.12Pursuant thereto, Antonio attempted to take over Supreme Court. Thus, as long as the nature of the controversy is
the farm, but was allegedly prevented by Fidel and his men.13 intra-corporate, the designated RTCs have the authority to exercise
Characterizing Nathaniel’s, Priscila’s, and Antonio’s continuous jurisdiction over such cases.
representation of the corporation as a usurpation of the management
powers and prerogatives of the "real" Board of Directors, the The existence of any of the above intra-corporate relations was
sufficient to confer jurisdiction to the SEC now the RTC, regardless
of the subject matter of the dispute. This came to be known as the The first element requires that the controversy must arise out of
relationship test. intra-corporate or partnership relations between any or all of the
However, in the 1984 case of DMRC Enterprises v. Esta del Sol parties and the corporation, partnership, or association of which they
Mountain Reserve, Inc., the Court introduced the nature of the are stockholders, members or associates, between any or all of them
controversy test. We declared in this case that it is not the mere and the corporation, partnership or association of which they are
existence of an intra-corporate relationship that gives rise to an intra- stockholders, members or associates, respectively; and between such
corporate controversy; to rely on the relationship test alone will corporation, partnership, or association and the State insofar as it
divest the regular courts of their jurisdiction for the sole reason that concerns the individual franchises. The second element requires that
the dispute involves a corporation, its directors, officers, or the dispute among the parties be intrinsically connected with the
stockholders. We saw that there is no legal sense in disregarding or regulation of the corporation. If the nature of the controversy
minimizing the value of the nature of the transactions which gives involves matters that are purely civil in character, necessarily, the
rise to the dispute. case does not involve an intra-corporate controversy.' (Citations and
some emphases omitted; emphases supplied.)
Under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of ascertaining Thus, to be considered as an intra-corporate dispute, the case: (a)
whether the controversy itself is intra-corporate. The controversy must arise out of intra-corporate or partnership relations, and (b) the
must not only be rooted in the existence of an intra-corporate nature of the question subject of the controversy must be such that it
relationship, but must as well pertain to the enforcement of the is intrinsically connected with the regulation of the corporation or the
parties' correlative rights and obligations under the Corporation Code enforcement of the parties’ rights and obligations under the
and the internal and intra-corporate regulatory rules of the Corporation Code and the internal regulatory rules of the
corporation. If the relationship and its incidents are merely incidental corporation. So long as these two criteria are satisfied, the dispute is
to the controversy or if there will still be conflict even if the intra-corporate and the RTC, acting as a special commercial court,
relationship does not exist, then no intra-corporate controversy has jurisdiction over it.
exists. Examining the case before us in relation to these two criteria, the
The Court then combined the two tests and declared that jurisdiction Court finds and so holds that the case is essentially an intra-corporate
should be determined by considering not only the status or dispute. It obviously arose from the intra-corporate relations between
relationship of the parties, but also the nature of the question under the parties, and the questions involved pertain to their rights and
controversy. obligations under the Corporation Code and matters relating to the
regulation of the corporation. We further hold that the nature of the
This two-tier test was adopted in the recent case of Speed case as an intra-corporate dispute was not affected by the subsequent
Distribution, Inc. v. Court of Appeals: dissolution of the corporation.
'To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of the
RTC specifically designated by the Court to try and decide such 12.Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038
cases, two elements must concur: (a) the status or relationship of the January 25, 2017
parties, and [b] the nature of the question that is the subject of their
controversy.1âwphi1
FACTS: Lim is a registered unit owner of 1322 Golden Empire election of its officers. Consequently, Lim filed an election protest
Tower (Golden Empire Tower), a condominium project of Moldex before the RTC.
Land, Inc. (Moldex), a real estate company engaged in the
construction and development of high-end condominium projects and RTC: Dismissed the complaint holding that there was a quorum during
in the marketing and sale of the units thereof to the general public. the July 21, 2012 annual membership meeting; that Moldex is a
Condocor, a non-stock, non-profit corporation, is the registered member of Condocor, being the registered owner of the unsold/unused
condominium corporation for the Golden Empire Tower. Lim, as a condominium units, parking lots and storage areas; and that the
unit owner of Golden Empire Tower, is a member of Condocor. individual respondents, as Moldex's representatives, were entitled to
exercise all membership rights, including the right to vote and to be
Lim claimed that the individual respondents are non-unit buyers, but voted.
all are members of the Board of Directors of Condocor, having been
elected during its organizational meeting in 2008. They were again In so ruling, the trial court explained that the presence or absence of a
elected during the July 21, 2012 general membership meeting. quorum in the subject meeting was determined on the basis of the
voting rights of all the units owned by the members in good standing.
Moldex became a member of Condocor on the basis of its ownership The total voting rights of unit owners in good standing was 73,376
of the 220 unsold units in the Golden Empire Tower. The individual and, as certified by the corporate secretary, 83.33% of the voting rights
respondents acted: as its representatives. in good standing were present in the said meeting, inclusive of the 5
8,504 voting rights of Moldex.
On July 21, 2012, Condocor held its annual general membership
meeting. Its corporate secretary certified, and Jaminola, as Chairman, ISSUES:
declared the existence of a quorum even though only 29 of the 1088 1) whether the July 21, 2012 membership meeting was valid;
unit buyers were present. The declaration of quorum was based on the 2) whether Moldex can be deemed a member of Condocor; and
presence of the majority of the voting rights, including those 3) whether a non-unit owner can be elected as a member of the Board
pertaining to the 220 unsold units held by Moldex through its of Directors of Condocor.
representatives. Lim, through her attorney-in-fact, objected to the
validity of the meeting. The objection was denied. Thus, Lim and all HELD:
the other unit owners present, except for one, walked out and left the
meeting. 1. Lim is still a member of Condocor

Despite the walkout, the individual respondents and the other unit Section 90 of the Corporation Code states that membership in a non-
owner proceeded with the annual general membership meeting and stock corporation and all rights arising therefrom are personal and
elected the new members of the Board of Directors for 2012-2013. All non-transferable, unless the articles of incorporation or the by-laws
four (4) individual respondents were voted as members of the board, otherwise provide. Nothing in the records showed that the alleged
together with three (3) others whose election was conditioned on their transfer made by Lim was registered with the Register of Deeds of the
subsequent confirmation. Thereafter, the newly elected members of City of Manila or was reported to the corporation. Logically, until and
the board conducted an organizational meeting and proceeded with the unless the registration is effected, Lim remains to be the registered
owner of the condominium unit and thus, continues to be a member of As there was no quorum, any resolution passed during the July 21,
Condocor. 2012 annual membership meeting was null and void and, therefore,
not binding upon the corporation or its members. The meeting being
2. In non-stock corporations, quorum is determined by the null and void, the resolution and disposition of other legal issues
majority of its actual members emanating from the null and void July 21, 2012 membership meeting
has been rendered unnecessary.
For stock corporations, the quorum is based on the number of
outstanding voting stocks while for non-stock corporations, only those
who are actual, living members with voting rights shall be counted in 3. Moldex is a member Of Condocor
determining the existence of a quorum.
In this case, Lim argued that Moldex cannot be a member of
It must be emphasized that insofar as Condocor is concerned, quorum Condocor. She insisted that a condominium corporation is an
is different from voting rights. Applying the law and Condocor's By- association of homeowners for the purpose of managing the
Laws, if there are 100 members in a non-stock corporation, 60 of condominium project, among others. Thus, it must be composed of
which are members in good standing, then the presence of 50% plus 1 actual unit buyers or residents of the condominium project. Lim
of those members in good standing will constitute a quorum. Thus, 31 further averred that the ownership contemplated by law must result
members in good standing will suffice in order to consider a meeting from a sale transaction between the owner-developer and the
valid as regards the presence of quorum. The 31 members will purchaser. She advanced the view that the ownership of Moldex was
naturally have to exercise their voting rights. It is in this instance when only in the nature of an owner-developer and only for the sole purpose
the number of voting rights each member is entitled to becomes of selling the units.
significant. If 29 out of the 31 members are entitled to 1 vote each,
another member (known as A) is entitled to 20 votes and the remaining There is no provision in P.D. No. 957 which states that an owner-
member (known as B) is entitled to 15 votes, then the total number of developer of a condominium project cannot be a member of a
voting rights of all 31 members is 64. Thus, majority of the 64 total condominium corporation. Section 30 of P.D. No. 957 determines the
voting rights, which is 33 (50% plus 1), is necessary to pass a valid purposes of a homeowners association - to promote and protect the
act. Assuming that only A and B concurred in approving a specific mutual interest of the buyers and residents, and to assist in their
undertaking, then their 35 combined votes are more than sufficient to community development. A condominium corporation, however, is
authorize such act. not just a management body of the condominium project. It also holds
title to the common areas, including the land, or the appurtenant
The By-Laws of Condocor has no rule different from that provided in interests in such areas. Hence, it is especially governed by the
the Corporation Code with respect the determination of the existence Condominium Act. Clearly, a homeowners association is different
of a quorum. The quorum during the July 21, 2012 meeting should from a condominium corporation. P.D. No. 957 does not regulate
have been majority of Condocor's members in good standing. condominium corporations and, thus, cannot be applied in this case.
Accordingly, there was no quorum during the July 21, 2012 meeting
considering that only 29 of the 108 unit buyers were present.
The next issue is - may Moldex appoint duly authorized Assistant Corporate Secretary of Condocor, in a sworn statement48
representatives who will exercise its membership rights, she executed on August 31, 2012.
specifically the right to be voted as corporate directors/officers?
Next question is - can the individual respondents be elected as
Moldex may appoint a duly authorized representative directors of Condocor?

A corporation can act only through natural persons duly authorized for Individual respondents who are non-members cannot be elected as
the purpose or by a specific act of its board of directors. Thus, in order directors and officers of the condominium corporation
for Moldex to exercise its membership rights and privileges, it
necessarily has to appoint its representatives. 13. Air Canada vs. Commissioner of Internal Revenue, 778
SCRA 131, G.R. No. 169507 January 11, 2016
Section 58 of the Corporation Code mandates:

Section 58. Proxies. - Stockholders and members may vote in person FACTS: Air Canada is a "foreign corporation organized and existing
or by proxy in all meetings of stockholders or members. Proxies shall under the laws of Canada[.]" On April 24, 2000, it was granted an
in writing, signed by the stockholder or member and filed before the authority to operate as an offline carrier by the Civil Aeronautics
scheduled meeting with the corporate secretary. Unless otherwise Board, subject to certain conditions, which authority would expire on
provided in the proxy, it shall be valid only for the meeting for which April 24, 2005. "As an off-line carrier, [Air Canada] does not have
it is intended. No proxy shall be valid and effective for a period longer flights originating from or coming to the Philippines [and does not]
than five (5) years at any one time. [Emphasis supplied] operate any airplane [in] the Philippines[.]"

Relative to the above provision is Section 1, Article II of Condocor's On July 1, 1999, Air Canada engaged the services of Aerotel Ltd.,
By-Laws, 46 which grants registered owners the right to designate any Corp. (Aerotel) as its general sales agent in the Philippines. Aerotel
person or entity to represent them in Condocor, subject to the "sells [Air Canada’s] passage documents in the Philippines."
submission of a written notification to the Secretary of such
designation. Further, the owner's representative is entitled to enjoy and For the period ranging from the third quarter of 2000 to the second
avail himself of all the rights and privileges, and perform all the duties quarter of 2002, Air Canada, through Aerotel, filed quarterly and
and responsibilities of a member of the corporation. The law and annual income tax returns and paid the income tax on Gross
Condocor's By-Laws evidently allow proxies in members' meeting. Philippine Billings in the total amount of ₱5,185,676.77.

Prescinding therefrom, Moldex had the right to send duly authorized On November 28, 2002, Air Canada filed a written claim for refund
representatives to represent it during the questioned general of alleged erroneously paid income taxes amounting to
membership meeting. Records showed that, pursuant to a Board ₱5,185,676.77 before the Bureau of Internal Revenue. To prevent the
Resolution, as certified by Sandy T. Uy, corporate secretary of running of the prescriptive period, Air Canada filed a Petition for
Moldex, the individual respondents were instituted as Moldex's Review before the Court of Tax Appeals on November 29, 2002.15
representatives. This was attested to by Mary Rose V. Pascual, The case was docketed as C.T.A. Case No. 6572.16
On December 22, 2004, the Court of Tax Appeals First Division the Philippines, is not liable to tax on Gross Philippine Billings under
rendered its Decision denying the Petition for Review and, hence, the Section 28(A)(3) of the 1997 National Internal Revenue Code.
claim for refund. It found that Air Canada was engaged in business Petitioner, an offline carrier, is a resident foreign corporation for
in the Philippines through a local agent that sells airline tickets on its income tax purposes. Petitioner falls within the definition of resident
behalf. As such, it should be taxed as a resident foreign corporation foreign corporation under Section 28(A)(1) of the 1997 National
at the regular rate of 32%.18 Further, according to the Court of Tax Internal Revenue Code, thus, it may be subject to 32%53 tax on its
Appeals First Division, Air Canada was deemed to have established taxable income:
a "permanent establishment" in the Philippines under Article V(2)(i) SEC. 28. Rates of Income Tax on Foreign Corporations. -
of the Republic of the Philippines-Canada Tax Treaty by the (A) Tax on Resident Foreign Corporations. -
appointment of the local sales agent, "in which [the] petitioner uses (1) In General. - Except as otherwise provided in this Code, a
its premises as an outlet where sales of [airline] tickets are made[.]" corporation organized, authorized, or existing under the laws of any
Air Canada seasonably filed a Motion for Reconsideration, but the foreign country, engaged in trade or business within the Philippines,
Motion was denied in the Court of Tax Appeals First Division’s shall be subject to an income tax equivalent to thirty-five percent
Resolution dated April 8, 2005 for lack of merit. The First Division (35%) of the taxable income derived in the preceding taxable year
held that while Air Canada was not liable for tax on its Gross from all sources within the Philippines: Provided, That effective
Philippine Billings under Section 28(A)(3), it was nevertheless liable January 1, 1998, the rate of income tax shall be thirty-four percent
to pay the 32% corporate income tax on income derived from the (34%); effective January 1, 1999, the rate shall be thirty-three
sale of airline tickets within the Philippines pursuant to Section percent (33%); and effective January 1, 2000 and thereafter, the rate
28(A)(1). shall be thirty-two percent (32%54). (Emphasis supplied)
On May 9, 2005, Air Canada appealed to the Court of Tax Appeals The definition of "resident foreign corporation" has not substantially
En Banc.24 The appeal was docketed as CTA EB No. 86. changed throughout the amendments of the National Internal
In the Decision dated August 26, 2005, the Court of Tax Appeals En Revenue Code. All versions refer to "a foreign corporation engaged
Banc affirmed the findings of the First Division.26 The En Banc in trade or business within the Philippines."
ruled that Air Canada is subject to tax as a resident foreign Commonwealth Act No. 466, known as the National Internal
corporation doing business in the Philippines since it sold airline Revenue Code and approved on June 15, 1939, defined "resident
tickets in the Philippines. foreign corporation" as applying to "a foreign corporation engaged in
trade or business within the Philippines or having an office or place
of business therein."55
ISSUE: W/N an offline international air carrier selling passage Section 24(b)(2) of the National Internal Revenue Code, as amended
tickets in the Philippines, through a general sales agent, is a resident by Republic Act No. 6110, approved on August 4, 1969, reads:
foreign corporation doing business in the Philippines. Sec. 24. Rates of tax on corporations. — . . .
(b) Tax on foreign corporations. — . . .
HELD: (2) Resident corporations. — A corporation organized, authorized, or
At the outset, we affirm the Court of Tax Appeals’ ruling that existing under the laws of any foreign country, except a foreign life
petitioner, as an offline international carrier with no landing rights in insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this
section upon the total net income received in the preceding taxable of their participation in the services rendered through the mode of
year from all sources within the Philippines.56 (Emphasis supplied) interline settlement as prescribed by Article VI of the Resolution No.
Presidential Decree No. 1158-A took effect on June 3, 1977 850 of the IATA Agreement." Those activities were in exercise of
amending certain sections of the 1939 National Internal Revenue the functions which are normally incident to, and are in progressive
Code. Section 24(b)(2) on foreign resident corporations was pursuit of, the purpose and object of its organization as an
amended, but it still provides that "[a] corporation organized, international air carrier. In fact, the regular sale of tickets, its main
authorized, or existing under the laws of any foreign country, activity, is the very lifeblood of the airline business, the generation of
engaged in trade or business within the Philippines, shall be taxable sales being the paramount objective. There should be no doubt then
as provided in subsection (a) of this section upon the total net income that BOAC was "engaged in" business in the Philippines through a
received in the preceding taxable year from all sources within the local agent during the period covered by the assessments.
Philippines[.]"57 Accordingly, it is a resident foreign corporation subject to tax upon
As early as 1987, this court in Commissioner of Internal Revenue v. its total net income received in the preceding taxable year from all
British Overseas Airways Corporation58declared British Overseas sources within the Philippines.60 (Emphasis supplied, citations
Airways Corporation, an international air carrier with no landing omitted)
rights in the Philippines, as a resident foreign corporation engaged in Republic Act No. 7042 or the Foreign Investments Act of 1991 also
business in the Philippines through its local sales agent that sold and provides guidance with its definition of "doing business" with regard
issued tickets for the airline company.59 This court discussed that: to foreign corporations. Section 3(d) of the law enumerates the
There is no specific criterion as to what constitutes "doing" or activities that constitute doing business:
"engaging in" or "transacting" business. Each case must be judged in d. the phrase "doing business" shall include soliciting orders, service
the light of its peculiar environmental circumstances. The term contracts, opening offices, whether called "liaison" offices or
implies a continuity of commercial dealings and arrangements, and branches; appointing representatives or distributors domiciled in the
contemplates, to that extent, the performance of acts or works or the Philippines or who in any calendar year stay in the country for a
exercise of some of the functions normally incident to, and in period or periods totalling one hundred eighty (180) days or more;
progressive prosecution of commercial gain or for the purpose and participating in the management, supervision or control of any
object of the business organization. "In order that a foreign domestic business, firm, entity or corporation in the Philippines; and
corporation may be regarded as doing business within a State, there any other act or acts that imply a continuity of commercial dealings
must be continuity of conduct and intention to establish a continuous or arrangements, and contemplate to that extent the performance of
business, such as the appointment of a local agent, and not one of a acts or works, or the exercise of some of the functions normally
temporary character.["] incident to, and in progressive prosecution of, commercial gain or of
BOAC, during the periods covered by the subject-assessments, the purpose and object of the business organization: Provided,
maintained a general sales agent in the Philippines. That general however, That the phrase "doing business" shall not be deemed to
sales agent, from 1959 to 1971, "was engaged in (1) selling and include mere investment as a shareholder by a foreign entity in
issuing tickets; (2) breaking down the whole trip into series of trips domestic corporations duly registered to do business, and/or the
— each trip in the series corresponding to a different airline exercise of rights as such investor; nor having a nominee director or
company; (3) receiving the fare from the whole trip; and (4) officer to represent its interests in such corporation; nor appointing a
consequently allocating to the various airline companies on the basis representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account[.]61 petitioner is able to engage in an economic activity in the
(Emphasis supplied) Philippines.
While Section 3(d) above states that "appointing a representative or Further, petitioner was issued by the Civil Aeronautics Board an
distributor domiciled in the Philippines which transacts business in authority to operate as an offline carrier in the Philippines for a
its own name and for its own account" is not considered as "doing period of five years, or from April 24, 2000 until April 24, 2005.69
business," the Implementing Rules and Regulations of Republic Act Petitioner is, therefore, a resident foreign corporation that is taxable
No. 7042 clarifies that "doing business" includes "appointing on its income derived from sources within the Philippines.
representatives or distributors, operating under full control of the Petitioner’s income from sale of airline tickets, through Aerotel, is
foreign corporation, domiciled in the Philippines or who in any income realized from the pursuit of its business activities in the
calendar year stay in the country for a period or periods totaling one Philippines.
hundred eighty (180) days or more[.]"62
An offline carrier is "any foreign air carrier not certificated by the
[Civil Aeronautics] Board, but who maintains office or who has
designated or appointed agents or employees in the Philippines, who
sells or offers for sale any air transportation in behalf of said foreign 14. Steelcase, Inc. v. Design International Selections, Inc., 18
air carrier and/or others, or negotiate for, or holds itself out by April 2012
solicitation, advertisement, or otherwise sells, provides, furnishes,
contracts, or arranges for such transportation."63 FACTS: Petitioner Steelcase, Inc. (Steelcase) is a foreign
"Anyone desiring to engage in the activities of an off-line carrier corporation existing under the laws of Michigan, United States of
[must] apply to the [Civil Aeronautics] Board for such authority."64 America (U.S.A.), and engaged in the manufacture of office furniture
Each offline carrier must file with the Civil Aeronautics Board a with dealers worldwide.[3] Respondent Design International
monthly report containing information on the tickets sold, such as the Selections, Inc. (DISI) is a corporation existing under Philippine
origin and destination of the passengers, carriers involved, and Laws and engaged in the furniture business, including the
commissions received.65 distribution of furniture.[4]
Petitioner is undoubtedly "doing business" or "engaged in trade or
business" in the Philippines. Sometime in 1986 or 1987, Steelcase and DISI orally entered into a
Aerotel performs acts or works or exercises functions that are dealership agreement whereby Steelcase granted DISI the right to
incidental and beneficial to the purpose of petitioner’s business. The market, sell, distribute, install, and service its products to end-user
activities of Aerotel bring direct receipts or profits to petitioner.66 customers within the Philippines. The business relationship
There is nothing on record to show that Aerotel solicited orders alone continued smoothly until it was terminated sometime in January
and for its own account and without interference from, let alone 1999 after the agreement was breached with neither party admitting
direction of, petitioner. On the contrary, Aerotel cannot "enter into any fault.[5]
any contract on behalf of [petitioner Air Canada] without the express
written consent of [the latter,]"67 and it must perform its functions On January 18, 1999, Steelcase filed a complaint[6] for sum of
according to the standards required by petitioner.68 Through Aerotel, money against DISI alleging, among others, that DISI had an unpaid
account of US$600,000.00. Steelcase prayed that DISI be ordered to
pay actual or compensatory damages, exemplary damages, attorneys Foreign Investments Act of 1991), and since it did not have the
fees, and costs of suit. license to do business in the country, it was barred from seeking
redress from our courts until it obtained the requisite license to do so.
In its Answer with Compulsory Counterclaims[7] dated February 4, Its determination was further bolstered by the appointment by
1999, DISI sought the following: (1) the issuance of a temporary Steelcase of a representative in the Philippines. Finally, despite a
restraining order (TRO) and a writ of preliminary injunction to showing that DISI transacted with the local customers in its own
enjoin Steelcase from selling its products in the Philippines except name and for its own account, it was of the opinion that any doubt in
through DISI; (2) the dismissal of the complaint for lack of merit; the factual environment should be resolved in favor of a
and (3) the payment of actual, moral and exemplary damages pronouncement that a foreign corporation was doing business in the
together with attorneys fees and expenses of litigation. DISI alleged Philippines, considering the twelve-year period that DISI had been
that the complaint failed to state a cause of action and to contain the distributing Steelcase products in the Philippines.
required allegations on Steelcases capacity to sue in the Philippines
despite the fact that it (Steelcase) was doing business in the Steelcase moved for the reconsideration of the questioned Order but
Philippines without the required license to do so. Consequently, it the motion was denied by the RTC in its May 29, 2000 Order.[12]
posited that the complaint should be dismissed because of Steelcases
lack of legal capacity to sue in Philippine courts. Aggrieved, Steelcase elevated the case to the CA by way of appeal,
assailing the November 15, 1999 and May 29, 2000 Orders of the
On March 3, 1999, Steelcase filed its Motion to Admit Amended RTC. On March 31, 2005, the CA rendered its Decision affirming
Complaint[8] which was granted by the RTC, through then Acting the RTC orders, ruling that Steelcase was a foreign corporation doing
Presiding Judge Roberto C. Diokno, in its Order[9] dated April 26, or transacting business in the Philippines without a license. The CA
1999. However, Steelcase sought to further amend its complaint by stated that the following acts of Steelcase showed its intention to
filing a Motion to Admit Second Amended Complaint[10] on March pursue and continue the conduct of its business in the Philippines: (1)
13, 1999. sending a letter to Phinma, informing the latter that the distribution
rights for its products would be established in the near future and
In his Order[11] dated November 15, 1999, Acting Presiding Judge directing other questions about orders for Steelcase products to
Bonifacio Sanz Maceda dismissed the complaint, granted the TRO Steelcase International; (2) cancelling orders from DISIs customers,
prayed for by DISI, set aside the April 26, 1999 Order of the RTC particularly Visteon, Phils., Inc. (Visteon); (3) continuing to send its
admitting the Amended Complaint, and denied Steelcases Motion to products to the Philippines through Modernform Group Company
Admit Second Amended Complaint. The RTC stated that in Limited (Modernform), as evidenced by an Ocean Bill of Lading;
requiring DISI to meet the Dealer Performance Expectation and in and (4) going beyond the mere appointment of DISI as a dealer by
terminating the dealership agreement with DISI based on its failure making several impositions on management and operations of DISI.
to improve its performance in the areas of business planning, Thus, the CA ruled that Steelcase was barred from access to our
organizational structure, operational effectiveness, and efficiency, courts for being a foreign corporation doing business here without
Steelcase unwittingly revealed that it participated in the operations of the requisite license to do so.
DISI. It then concluded that Steelcase was doing business in the
Philippines, as contemplated by Republic Act (R.A.) No. 7042 (The
Steelcase filed a motion for reconsideration but it was denied by the by which it was to conduct its business, including the management
CA in its Resolution dated March 23, 2006.[13] and solicitation of orders from customers, thereby assuming control
of its operations. DISI further insists that Steelcase treated and
Hence, this petition. considered DISI as a mere conduit, as evidenced by the fact that
Steelcase itself directly sold its products to customers located in the
ISSUE: Philippines who were classified as part of their global accounts. DISI
(1) Whether or not Steelcase is doing business in the Philippines cited other established circumstances which prove that Steelcase was
without a license; and doing business in the Philippines including the following: (1) the sale
(2) Whether or not DISI is estopped from challenging the Steelcases and delivery by Steelcase of furniture to Regus, a Philippine client,
legal capacity to sue. through Modernform, a Thai corporation allegedly controlled by
Steelcase; (2) the imposition by Steelcase of certain requirements
HELD: over the management and operations of DISI; (3) the representations
Steelcase is an unlicensed foreign corporation NOT doing made by Steven Husak as Country Manager of Steelcase; (4) the
business in the Philippines cancellation by Steelcase of orders placed by Philippine clients; and
(5) the expression by Steelcase of its desire to maintain its business
Anent the first issue, Steelcase argues that Section 3(d) of R.A. No. in the Philippines. Thus, Steelcase has no legal capacity to sue in
7042 or the Foreign Investments Act of 1991 (FIA) expressly states Philippine Courts because it was doing business in the Philippines
that the phrase doing business excludes the appointment by a foreign without a license to do so.
corporation of a local distributor domiciled in the Philippines which
transacts business in its own name and for its own account. Steelcase The Court agrees with the petitioner.
claims that it was not doing business in the Philippines when it
entered into a dealership agreement with DISI where the latter, The rule that an unlicensed foreign corporations doing business in
acting as the formers appointed local distributor, transacted business the Philippine do not have the capacity to sue before the local courts
in its own name and for its own account. Specifically, Steelcase is well-established. Section 133 of the Corporation Code of the
contends that it was DISI that sold Steelcases furniture directly to the Philippines explicitly states:
end-users or customers who, in turn, directly paid DISI for the
furniture they bought. Steelcase further claims that DISI, as a non- Sec. 133. Doing business without a license. - No foreign corporation
exclusive dealer in the Philippines, had the right to market, sell, transacting business in the Philippines without a license, or its
distribute and service Steelcase products in its own name and for its successors or assigns, shall be permitted to maintain or intervene in
own account. Hence, DISI was an independent distributor of any action, suit or proceeding in any court or administrative agency
Steelcase products, and not a mere agent or conduit of Steelcase. of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any
On the other hand, DISI argues that it was appointed by Steelcase as valid cause of action recognized under Philippine laws.
the latters exclusive distributor of Steelcase products. DISI likewise
asserts that it was not allowed by Steelcase to transact business in its
own name and for its own account as Steelcase dictated the manner
The phrase doing business is clearly defined in Section 3(d) of R.A. continuity of commercial dealings or arrangements, and contemplate
No. 7042 (Foreign Investments Act of 1991), to wit: to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to and in progressive
d) The phrase doing business shall include soliciting orders, service prosecution of commercial gain or of the purpose and object of the
contracts, opening offices, whether called liaison offices or branches; business organization.
appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a The following acts shall not be deemed doing business in the
period or periods totalling one hundred eighty (180) days or more; Philippines:
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and 1. Mere investment as a shareholder by a foreign entity in domestic
any other act or acts that imply a continuity of commercial dealings corporations duly registered to do business, and/or the exercise of
or arrangements, and contemplate to that extent the performance of rights as such investor;
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of 2. Having a nominee director or officer to represent its interest in
the purpose and object of the business organization: Provided, such corporation;
however, That the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in 3. Appointing a representative or distributor domiciled in the
domestic corporations duly registered to do business, and/or the Philippines which transacts business in the representative's or
exercise of rights as such investor; nor having a nominee director or distributor's own name and account;
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which 4. The publication of a general advertisement through any print or
transacts business in its own name and for its own account; broadcast media;
(Emphases supplied)
5. Maintaining a stock of goods in the Philippines solely for the
This definition is supplemented by its Implementing Rules and purpose of having the same processed by another entity in the
Regulations, Rule I, Section 1(f) which elaborates on the meaning of Philippines;
the same phrase:
6. Consignment by a foreign entity of equipment with a local
f. Doing business shall include soliciting orders, service contracts, company to be used in the processing of products for export;
opening offices, whether liaison offices or branches; appointing
representatives or distributors, operating under full control of the 7. Collecting information in the Philippines; and
foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period totalling one hundred 8. Performing services auxiliary to an existing isolated contract of
eighty [180] days or more; participating in the management, sale which are not on a continuing basis, such as installing in the
supervision or control of any domestic business, firm, entity or Philippines machinery it has manufactured or exported to the
corporation in the Philippines; and any other act or acts that imply a
Philippines, servicing the same, training domestic workers to operate preceding facts, the only reasonable conclusion that can be reached is
it, and similar incidental services. (Emphases supplied) that DISI was an independent contractor, distributing various
products of Steelcase and of other companies, acting in its own name
and for its own account.
From the preceding citations, the appointment of a distributor in the The CA, in finding Steelcase to be unlawfully engaged in business in
Philippines is not sufficient to constitute doing business unless it is the Philippines, took into consideration the delivery by Steelcase of a
under the full control of the foreign corporation. On the other hand, if letter to Phinma informing the latter that the distribution rights for its
the distributor is an independent entity which buys and distributes products would be established in the near future, and also its
products, other than those of the foreign corporation, for its own cancellation of orders placed by Visteon. The foregoing acts were
name and its own account, the latter cannot be considered to be apparently misinterpreted by the CA. Instead of supporting the claim
doing business in the Philippines.[14] It should be kept in mind that that Steelcase was doing business in the country, the said acts prove
the determination of whether a foreign corporation is doing business otherwise. It should be pointed out that no sale was concluded as a
in the Philippines must be judged in light of the attendant result of these communications. Had Steelcase indeed been doing
circumstances.[15] business in the Philippines, it would have readily accepted and
serviced the orders from the abovementioned Philippine companies.
In the case at bench, it is undisputed that DISI was founded in 1979 Its decision to voluntarily cease to sell its products in the absence of
and is independently owned and managed by the spouses Leandro a local distributor indicates its refusal to engage in activities which
and Josephine Bantug.[16] In addition to Steelcase products, DISI might be construed as doing business.
also distributed products of other companies including carpet tiles,
relocatable walls and theater settings.[17] The dealership agreement Another point being raised by DISI is the delivery and sale of
between Steelcase and DISI had been described by the owner himself Steelcase products to a Philippine client by Modernform allegedly an
as: agent of Steelcase. Basic is the rule in corporation law that a
corporation has a separate and distinct personality from its
xxx basically a buy and sell arrangement whereby we would inform stockholders and from other corporations with which it may be
Steelcase of the volume of the products needed for a particular connected.[19] Thus, despite the admission by Steelcase that it owns
project and Steelcase would, in turn, give special quotations or 25% of Modernform, with the remaining 75% being owned and
discounts after considering the value of the entire package. In controlled by Thai stockholders,[20] it is grossly insufficient to
making the bid of the project, we would then add out profit margin justify piercing the veil of corporate fiction and declare that
over Steelcases prices. After the approval of the bid by the client, we Modernform acted as the alter ego of Steelcase to enable it to
would thereafter place the orders to Steelcase. The latter, upon our improperly conduct business in the Philippines. The records are
payment, would then ship the goods to the Philippines, with us bereft of any evidence which might lend even a hint of credence to
shouldering the freight charges and taxes.[18] [Emphasis supplied] DISIs assertions. As such, Steelcase cannot be deemed to have been
doing business in the Philippines through Modernform.

This clearly belies DISIs assertion that it was a mere conduit through Finally, both the CA and DISI rely heavily on the Dealer
which Steelcase conducted its business in the country. From the Performance Expectation required by Steelcase of its distributors to
prove that DISI was not functioning independently from Steelcase By acknowledging the corporate entity of Steelcase and entering into
because the same imposed certain conditions pertaining to business a dealership agreement with it and even benefiting from it, DISI is
planning, organizational structure, operational effectiveness and estopped from questioning Steelcases existence and capacity to sue.
efficiency, and financial stability. It is actually logical to expect that
Steelcase, being one of the major manufacturers of office systems
furniture, would require its dealers to meet several conditions for the 15. Vicmar Development Corporation vs. Elarcosa G.R. No.
grant and continuation of a distributorship agreement. The 202215, December 9, 2015
imposition of minimum standards concerning sales, marketing,
finance and operations is nothing more than an exercise of sound FACTS: Respondents alleged that Vicmar, a domestic corporation
business practice to increase sales and maximize profits for the engaged in manufacturing of plywood for export and for local sale,
benefit of both Steelcase and its distributors. For as long as these employed them in various capacities - as boiler tenders, block board
requirements do not impinge on a distributors independence, then receivers, waste feeders, plywood checkers, plywood sander,
there is nothing wrong with placing reasonable expectations on them. conveyor operator, ripsaw operator, lumber grader, pallet repair, glue
All things considered, it has been sufficiently demonstrated that DISI mixer, boiler fireman, steel strap repair, debarker operator, plywood
was an independent contractor which sold Steelcase products in its repair and reprocessor, civil workers and plant maintenance. They
own name and for its own account. As a result, Steelcase cannot be averred that Vicmar has two branches, Top Forest Developers,
considered to be doing business in the Philippines by its act of Incorporated (TFDI) and Greenwood International Industries,
appointing a distributor as it falls under one of the exceptions under Incorporated (GUI) located in the same compound where Vicmar
R.A. No. 7042. operated.

Unquestionably, entering into a dealership agreement with Steelcase Sometime in 2004, Vicmar allegedly informed respondents that they
charged DISI with the knowledge that Steelcase was not licensed to would be handled by contractors. Respondents stated that these
engage in business activities in the Philippines. This Court has contractors were former employees of Vicmar and had no equipment
carefully combed the records and found no proof that, from the and facilities of their own. Respondents averred that as a result
inception of the dealership agreement in 1986 until September 1998, thereof, the wages of a number of them who were receiving P276.00
DISI even brought to Steelcases attention that it was improperly as daily wage, were reduced to P200.00 or P180.00, despite overtime
doing business in the Philippines without a license. It was only work; and the wages of those who were receiving P200.00 and
towards the latter part of 1998 that DISI deemed it necessary to P180.00 were reduced to P145.00 or P131.00. Respondents protested
inform Steelcase of the impropriety of the conduct of its business said wage decrease but to no avail. Thus, they filed a Complaint with
without the requisite Philippine license. It should, however, be noted the DOLE for violations of labor standards for which appropriate
that DISI only raised the issue of the absence of a license with compliance orders were issued against Vicmar.
Steelcase after it was informed that it owed the latter US$600,000.00
for the sale and delivery of its products under their special credit Respondents claimed that they were illegally dismissed after "vicmar
arrangement. learned that they instituted the subject Complaint through the simple
expedience of not being scheduled for work. Even those persons
associated with them were dismissed. They also asserted that Vicmar
did not comply with the twin notice requirement in dismissing maintained that the contractors were engaged by Vicmar only for the
employees. convenience of Vicmar. In sum, the CA declared that respondents
were illegally dismissed since there was no showing of just cause for
Furthermore, respondents contended that while Vicmar, TFDI and their termination and of compliance by Vicmar to due process of law.
Gin were separately registered with the SEC, they were involved in
the same business, located in the same compound, owned by one On May 10, 2012, the CA denied petitioners' motion for
person, had one resident manager, and one and the same reconsideration.
administrative department, personnel and finance sections. They
claimed that the employees of these companies were identified as ISSUE: Did the CA err in finding that the NLRC gravely abused its
employees of Vicmar even if they were assigned in TFDI or GIII. discretion in affirming the ELAs' Decisions dismissing the
complaint?
Rulings of the Executive Labor Arbiter
Both ELAs Pelaez and Magbanua held that respondents were HELD: In this case, we find that the CA correctly granted
seasonal employees of Vicmar, whose work was "co-terminus or respondents' Petition for Certiorari because the NLRC gravely
dependent upon the extraordinary demands for plywood products and abused its discretion when it affirmed the dismissal of respondents'
also on the availability of logs or timber to be processed into Complaints.
plywood." They noted that Vicmar could adopt cost-saving measures
as part of its management prerogative, including engagement of Section 280 of the Labor Code defines a regular employee as one
legitimate independent contractors. who is 1) engaged to perform tasks usually necessary or desirable in
the usual business or trade of the employer, unless the employment is
Ruling of the National Labor Relations Commission one for a specific project or undertaking or where the work is
seasonal and for the duration of a season; or 2) has rendered at least 1
NLRC affirmed the Decisions of ELAs Pelaez and Magbanua.49 On year of service, whether such service is continuous or broken, with
April 30, 2007, it denied respondents' motion for reconsideration. respect to the activity for which he is employed and his employment
continues as long as such activity exists.66
Ruling of the Court of Appeals
Here, there is substantial evidence to prove that respondents were
The CA held that a number of respondents were assigned to the regular employees such that their separation from work without valid
boiler section where plywood was dried and cooked to perfection; cause amounted to illegal dismissal.
and while the other respondents were said to have been assigned at
the general service section, they were "cleaners on an industrial level The Court also holds that Vicmar failed to prove that the contractors
handling industrial refuse." As such, according to the CA, it engaged were legitimate labor contractors.
respondents performed activities necessary and desirable in the usual
business of Vicmar, as they were assigned to departments vital to its To determine the existence of independent contractorship, it is
operations. It also noted that the repeated hiring of respondents necessary to establish that the contractor carries a distinct and
proved the importance of their work to Vicmar's business. It independent business, and undertakes to perform work on its own
account and under its responsibility and pursuant to its own manner respondents as helpers; on December 28, 2004, Cesar Lee, through the
and method, without the control of the principal, except as to the Supervisor Nazario Furio, informed them that DMI would cease its
result; that the contractor has substantial capital or investment; and, hauling operation for no reason; as such, they requested DMI to issue
that the agreement between the principal and the contractor assures a formal notice regarding the matter but to no avail. Later, upon
the contractual employees to all labor and occupational safety and respondents' request, the DOLE NCR issued a certification revealing
health standards, to right to self-organization, security of tenure and that DMI did not file any notice of business closure. Thus, respondents
other benefits. argued that they were illegally dismissed as their termination was
without cause and only on the pretext of closure. On October 28, 2005,
The Court also gives merit to the finding of the CA that Vicmar is LA Aliman D. Mangandog dismissed the case for lack of cause of
the employer of respondents despite the allegations that a number of action. On November 23, 2007, the NLRC reversed and set aside the
them were assigned to the branches of Vicmar. Petitioners failed to LA Decision. It ruled that respondents were illegally dismissed
refute the contention that Vicmar and its branches have the same because DMI simply placed them on standby, and no longer provide
owner and management - which included one resident manager, one them with work. The NLRC Decision became final and executory on
administrative department, one and the same personnel and finance December 30, 2007.15 And, on February 14, 2008, the NLRC issued
sections. Notably, all respondents were employed by the same plant an Entry of Judgment on the case.
manager, who signed their identification cards some of whom were
under Vicmar, and the others under TFDI. Consequently, respondents filed a Motion for Writ of Execution.
Later, they submitted a Reiterating Motion for Writ of Execution with
Where it appears that business enterprises are owned, conducted and Updated Computation of Full Backwages. Pending resolution of these
controlled by the same parties, law and equity will disregard the legal motions, respondents filed a Manifestation and Motion to Implead
fiction that these corporations are distinct entities and shall treat them stating that upon investigation, they discovered that DMI no longer
as one. This is in order to protect the rights of third persons, as in this operates. They, nonetheless, insisted that petitioners - who managed
case, to safeguard the rights of respondents. and operated DMI, and consistently represented to respondents that
they were the owners of DMI - continue to work at Toyota Alabang,
Considering that respondents were regular employees and their which they (petitioners) also own and operate. They further averred
termination without valid cause amounts to illegal dismissal, then for that the Articles of Incorporation (AOI) of DMI ironically did not
its contrary ruling unsupported by substantial evidence, the NLRC include petitioners as its directors or officers; and those named
gravely abused its discretion in dismissing the complaints for illegal directors and officers were persons unknown to them. They likewise
dismissal. Therefore, the CA Decision setting aside that of the NLRC claimed that per inquiry with the SEC20 and the DOLE, they learned
is in order and must be sustained. that DMI did not tile any notice of business closure; and the creation
and operation of DMI was attended with fraud making it convenient
for petitioners to evade their legal obligations to them.
16. Dutch Movers, Inc. vs. Vs. Lequin G.R. No. 210032; April 25,
2017 Given these developments, respondents prayed that petitioners, and
FACTS: DMI, a domestic corporation engaged in hauling liquefied the officers named in DMI's AOI, which included Edgar N. Smith and
petroleum gas, employed Lequin as truck driver and the rest of
Millicent C. Smith (spouses Smith), be impleaded, and be held names to petitioners, and they were included as incorporators just to
solidarity liable with DMI in paying the judgment awards. assist the latter in forming DMI; after such undertaking, spouses Smith
immediately transferred their rights in DMI to petitioners, which
NLRC: ruled that the Writ of Execution should only pertain to DMI proved that petitioners were the ones in control of DMI, and used the
since petitioners were not held liable to pay the awards under the final same in furthering their business interests.
and executory NLRC Decision. It added that petitioners could not be
sued personally for the acts of DMI because the latter had a separate Here, the veil of corporate fiction must be pierced and accordingly,
and distinct personality from the persons comprising it; and, there was petitioners should be held personally liable for judgment awards
no showing that petitioners were stockholders or officers of DMI; or because the peculiarity of the situation shows that they controlled
even granting that they were, they were not shown to have acted in bad DMI; they actively participated in its operation such that DMI existed
faith against respondents. not as a separate entity but only as business conduit of petitioners. As
will be shown be shown below, petitioners controlled DMI by making
On January 29, 2010, the NLRC denied respondents' Motion for it appear to have no mind of its own,37 and used DMI as shield in
Reconsideration evading legal liabilities, including payment of the judgment awards in
favor of respondents.
CA reversed and set aside the NLRC Resolutions, and accordingly
affirmed the Writ of Execution impleading petitioners as party- First, petitioners and DMI jointly filed their Position Paper, Reply, and
respondents liable to answer for the judgment awards. It also noted Rejoinder in contesting respondents' illegal dismissal. Perplexingly,
that such participation of petitioners was confirmed by DIVII's two petitioners argued that they were not part of DMI and were not privy
incorporators who attested that they lent their names to petitioners to to its dealings; yet, petitioners, along with DMI, collectively raised
assist the latter in incorporating DMI; and, after their undertaking, arguments on the illegal dismissal case against them.
these individuals relinquished their purported interests in DMI in favor
of petitioners. Second, the declarations made by spouses Smith further bolster that
petitioners and no other controlled DMI.
On November 13, 2013, the CA denied the Motion for Spouses Smith categorically identified petitioners as the owners and
Reconsideration on the assailed Decision. managers of DMI. In their Motion to Quash, however, petitioners
neither denied the allegation of spouses Smith nor adduced evidence
ISSUE: W/N THERE IS NO LEGAL BASIS TO PIERCE THE VEIL to establish that they were not the owners and managers of DMI. They
OF CORPORATE FICTION OF DUTCH MOVERS, INC. simply insisted that they could not be held personally liable because
of the immutability of the final and executory NLRC Decision, and of
HELD: YES. Supervening events transpired in this case after the the separate and distinct personality of DMI.
NLRC Decision became final and executory, which rendered its
execution impossible and unjust. Like in Valderrama, during the Third, piercing the veil of corporate fiction is allowed, and responsible
execution stage, DMI ceased its operation, and the same did not file persons may be impleaded, and be held solidarily liable even after
any formal notice regarding it. Added to this, in their Opposition to final judgment and on execution, provided that such persons
the Motion to Implead, spouses Smith revealed that they only lent their deliberately used the corporate vehicle to unjustly evade the judgment
obligation, or resorted to fraud, bad faith, or malice in evading their incorporators/stockholders of ACCS who have no active
obligation. participation in the operation, management, and control of the
business; that ACCS was only engaged in the distribution of LPG
In this case, petitioners were impleaded from the inception of this case. products and not in the refilling of LPG cylinders; and, that ACCS
They had ample opportunity to debunk the claim that they illegally did not commit any violation of BP 33 as amended.
dismissed respondents, and that they should be held personally liable
for having controlled DMI and actively participated in its P/Supt. Esguerra filed a Reply-Affidavit22 wherein he pointed out
management, and for having used it to evade legal obligations to that during the test-buy operation, his team was issued ACCS
respondents. Control Receipts. To him, this negated the claim of Antonio and
respondents that ACCS was not engaged in the refilling of cylinder
17. Federated LPG Dealers Association vs. Ma. Cristina l. del tanks and that the persons in-charge thereof were not ACCS'
Rosario, et al., G.R. No. 202639; November 9, 2016 employees. P/Supt. Esguerra likewise stressed that pursuant to
Section 4 of BP 33, the President, General Manager, Managing
FACTS: On December 14, 2006, P/Supt Esguerra filed with the Partner, or such other officer charged with the management of the
Department of Justice (DOJ) Complaints-Affidavits against Antonio business affairs of the corporation, or the employee responsible for
and respondents for illegal trading of petroleum products and for the violation shall be criminally liable. Thus, Antonio, being the
underfilling of LPG cylinders under Section 2(a) and 2(c), General Manager, is criminally liable. Anent the respondents, P/Supt.
respectively, of BP 33, as amended.19 Esguerra averred that the Articles of Incorporation (AOI) of ACCS
provides that there shall be five incorporators who shall also serve as
In his Counter-Affidavit,20 Antonio admitted that he was the the directors. Considering that respondents were listed in the AOI as
General Manager of ACCS but denied that the company was incorporators, they are thus deemed as the directors of ACCS. And
engaged in illegal trading and underfilling. He clai1ned that ACCS since the By-Laws of ACCS provides that all business shall be
was merely a dealer of LPG products to various retailers in Quezon conducted and all property of the corporation controlled and held by
City and that the alleged refilling plant in G. Araneta Avenue, the Board of Directors, and also pursuant to Section 2323 of the
Quezon City was only being used by ACCS as storage of LPG Corporation Code, respondents are likewise criminally liable.
products intended for distribution. He also denied that ACCS has
anything to do with the persons allegedly in-charge of refilling In their Joint Rejoinder-Affidavit,24 Antonio and respondents
activities in the said compound since they were not its employees. reiterated that ACCS was only a dealer and distributor of petroleum
Likewise, the properties seized during the search and seizure products and not engaged in refilling activities. They also stressed,
operation were not owned by ACCS but by third parties who were among others, that respondents cannot be held liable under BP 33 as
bringing in LPG tanks for refilling with which, as mentioned, ACCS amended since the AOI of ACCS did not state that they were the
has nothing to do. Antonio likewise asserted that the herein President, General Manager, Managing Partner, or such other officer
respondents were merely incorporators of ACCS who have no active charged with the management of business affairs. What the AOI
participation in the operation of the business of the corporation. plainly indicated was that they were the incorporating stockholders
of the corporation and nothing more.
Respondents, for their part, filed a Joint Counter-Affidavit21
corroborating the statements of Antonio that they were merely
However, P/Supt. Esguerra in his Sur-Rejoinder Affidavit25 insisted of being an officer charged with the management of the business
that ACCS committed illegal trading of petroleum products and affairs is a factual issue which must be alleged and supported by
underfilling and that Antonio and respondents are criminally liable evidence. Here, there is no dispute that neither of the respondents
for the same. was the President, General Manager, or Managing Partner of ACCS.
Hence, it becomes incumbent upon petitioner to show that
ISSUE: Can respondents, as members of the Board of Directors of respondents were officers charged with the management of the
ACCS, be criminally prosecuted for the latter's alleged violation/s of business affairs. However, the Complaint-Affidavit39 attached to the
BP 33 as amended? records merely states that respondents were members of the Board of
Directors based on the AOI of ACCS. There is no allegation
HELD: The CA ratiocinated that by the election or designation of whatsoever that they were in-charge of the management of the
Antonio as General Manager of ACCS, the daily business operations corporation’s business affairs.
of the corporation were vested in his hands and had ceased to be the At any rate, the Court has gone through the By-Laws of ACCS and
responsibility of respondents as members of the Board of Directors. found nothing therein which would suggest that respondents were
Respondents, therefore, were not officers charged with the directly involved in the day-to-day operations of the corporation.
management of the business affairs who could be held liable
pursuant to paragraph 3, Section 4 of BP 33, as amended, which True, Section 140 of Article ID thereof contains a general statement
states that: that the corporate powers of ACCS shall be exercised, all business
conducted, and all property of the corporation controlled and held by
When the offender is a corporation, partnership, or other juridical the Board of Directors. Notably, however, the same provision
person, the president, the general manager, managing partner, or likewise significantly vests the Board with specific powers that were
such other officer charged with the management of the business generally concerned with policy making from which it can
affairs thereof, or employee responsible for the violation shall be reasonably be deduced that the Board only concerns itself in the
criminally liable. x x x business affairs by setting administrative and operational policies. It
is actually the President under Section 2,41 Article IV of the said by-
Petitioner, on the other hand, insists that the Board of Directors, by laws who is vested with wide latitude in controlling the business
law, is responsible for the general management of the business operations of the corporation. Among others, the President is
affairs of a corporation. Conversely, respondents as members of the specifically empowered to supervise and manage the business affairs
Board of Directors of ACCS fall under the classification of officers of the corporation, to implement the administrative and operational
charged with the management of business affairs. policies of the corporation under his supervision and control, to
appoint, remove, suspend or discipline employees of the corporation,
As clearly enunciated in Ty, a member of the Board of Directors of a prescribe their duties, and determine their salaries. With these
corporation, cannot, by mere reason of such membership, be held functions, the President appears to be the officer charged with the
liable for the corporation’s probable violation of BP 33. If one is not management of the business affairs of ACCS. But since there is no
the President, General Manager or Managing Partner, it is imperative allegation or showing that any of the respondents was the President
that it first be shown that he/she falls under the catch-all "such other of ACCS, none of them, therefore, can be considered as an officer
officer charged with the management of the business affairs," before charged with the management of the business affairs even in so far as
he/she can prosecuted. However, it must be stressed, that the matter the By-Laws of the subject corporation is concerned.
Clearly, therefore, it is only Antonio, who undisputedly was the CMCI argued that the proposal was binding on both PPPC and A TSI
General Manager - a position among those expressly mentioned as because Felicisima was an officer and a majority stockholder of the
criminally liable under paragraph 4, Section 3 of BP 33, as amended two corporations. Moreover, in a letter dated 16 September 2003, 13
- can be prosecuted for ACCS' perceived violations of the said law. she allegedly represented to the new management of CMCI that she
Respondents who were mere members of the Board of Directors and was authorized to request the offsetting of PPPC's obligation with
not shown to be charged with the management of the business affairs ATSI's receivable from CMCI. When ATSI filed suit in November
were thus correctly dropped as respondents in the complaints. 2003, PPPC's debt arising from the mobilization fund allegedly
amounted to ₱10,766.272.24.

18. California Manufacturing Company, Inc. vs. Advanced RTC: The trial court ruled that legal compensation did not apply
Technology System, Inc., 824 SCRA 295, G.R. No. 202454 April because PPPC had a separate legal personality from its individual
25, 2017 stockholders, the Spouses Celones, and ATSI. Moreover, there was no
FACTS: Petitioner CMCI is a domestic corporation engaged in the board resolution or any other proof showing that Felicisima's proposal
food and beverage manufacturing business. Respondent ATSI is also to set-off the unpaid mobilization fund with CMCI 's rentals to A TSI
a domestic corporation that fabricates and distributes food processing for the Prodopak Machine had been authorized by the two
machinery and equipment, spare parts, and its allied products. corporations.

In August 200I, CMCI leased from ATSI a Prodopak machine which CA: The appellate court sustained the trial court's refusal to pierce the
was used to pack products in 20-ml. pouches. The parties agreed to a corporate veil. It ruled that there must be clear and convincing proof
monthly rental of ₱98,000 exclusive of tax. Upon receipt of an open that the Spouses Celones had used the separate personalities of ATSI
purchase order on 6 August 2001, ATSI delivered the machine to or PPPC as a shield to commit fraud or any wrong against CMCI,
CMCI's plant at Gateway Industrial Park, General Trias, Cavite on 8 which was not existing in this case.
August 2001.
Aside from the absence of a board resolution issued by ATSI, the CA
CMCI alleged that in 2000, PPPC agreed to transfer the processing of observed that the letter dated 30 July 2001 clearly showed that
CMCI's product line from its factory in Meycauayan to Malolos, Felicisima's proposal to effect the offsetting of debts was limited to
Bulacan. Upon the request of PPPC, through its Executive Vice the obligation of PPPC. 17 The appellate court thus sustained the trial
President Felicisima Celones, CMCI advanced ₱4 million as court's finding that ATSI was not bound by Felicisima's conduct.
mobilization fund. PPPC President and Chief Executive Officer
Francis Celones allegedly committed to pay the amount in 12 equal ISSUE: W/N the piercing of the corporate veil applies in this case.
instalments deductible from PPPC's monthly invoice to CMCI
beginning in October 2000. 11 CMCI likewise claims that in a letter HELD: CMCI argues that both the RTC and the CA overlooked the
dated 30 July 2001, 12 Felicisima proposed to set off PPPC's circumstances that it has proven to justify the piercing of corporate
obligation to pay the mobilization fund with the rentals for the veil in this case, i.e., (1) the interlocking board of directors,
Prodopak machine. incorporators, and majority stockholder of PPPC and ATSI; (2)
control of the two corporations by the Spouses Celones; and (3) the The doctrine of piercing the corporate veil applies only in three (3)
two corporations were mere alter egos or business conduits of each basic areas, namely: 1) defeat of public convenience as when the
other. CMCI now asks us to disregard the separate corporate corporate fiction is used as a vehicle for the evasion of an existing
personalities of A TSI and PPPC based on those circumstances and to obligation; 2) fraud cases or when the corporate entity is used to justify
enter judgment in favor of the application of legal compensation. a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where
a corporation is merely a farce since it is a mere alter ego or business
Whether one corporation is merely an alter ego of another, a sham or conduit of a person, or where the corporation is so organized and
subterfuge, and whether the requisite quantum of evidence has been controlled and its affairs are so conducted as to make it merely an
adduced to warrant the puncturing of the corporate veil are questions instrumentality, agency, conduit or adjunct of another corporation.
of fact. Relevant to this point is the settled rule that in a petition for
review on certiorari like this case, this Court's jurisdiction is limited to CMCI 's alter ego theory rests on the alleged interlocking boards of
reviewing errors of law in the absence of any showing that the factual directors and stock ownership of the two corporations. The CA,
findings complained of are devoid of support in the records or are however, rejected this theory based on the settled rule that mere
glaringly erroneous. This rule alone wan-ants the denial of the petition, ownership by a single stockholder of even all or nearly all of the
which essentially asks us to reevaluate the evidence adduced by the capital stocks of a corporation, by itself, is not sufficient ground to
pm1ies and the credibility of the witnesses presented. disregard the corporate veil. We can only sustain the CA's ruling. The
instrumentality or control test of the alter ego doctrine requires not
We have reviewed the evidence on record and have found no cogent mere majority or complete stock control, but complete domination of
reason to disturb the findings of the co mis a quo that ATSI is distinct finances, policy and business practice with respect to the transaction
and separate from PPPC, or from the Spouses Celones. in question. The corporate entity must be shown to have no separate
mind, will, or existence of its own at the time of the transaction.
Any piercing of the corporate veil must be done with caution. As the
CA had correctly observed, it must be certain that the corporate fiction Without question, the Spouses Celones are incorporators, directors,
was misused to such an extent that injustice, fraud, or crime was and majority stockholders of the ATSI and PPPC. But that is all that
committed against another, in disregard of rights. Moreover, the CMCI has proven. There is no proof that PPPC controlled the financial
wrongdoing must be clearly and convincingly established. Sarona v. policies and business practices of ATSI either in July 2001 when
NLRC instructs, thus: Felicisima proposed to set off the unpaid ₱3.2 million mobilization
fund with CMCI's rental of Prodopak machines; or in August 2001
Whether the separate personality of the corporation should be pierced when the lease agreement between CMCI and ATSI commenced.
hinges on obtaining facts appropriately pleaded or proved. However, Assuming arguendo that Felicisima was sufficiently clothed with
any piercing of the corporate veil has to be done with caution, albeit authority to propose the offsetting of obligations, her proposal cannot
the Court will not hesitate to disregard the corporate veil when it is bind ATSI because at that time the latter had no transaction yet with
misused or when necessary in the interest of justice. After all, the CMCI. Besides, CMCI had leased only one Prodopak machine.
concept of corporate entity was not meant to promote unfair Felicisima's reference to the Prodopak machines in its letter in July
objectives. 2001 could only mean that those were different from the Prodopak
machine that CMCI had leased from A TSI.
 MSL He further argued that since he had won the bidding of the
Contrary to the claim of CMCI, none of the letters from the Spouses property on 14 October 2004, or before the annotation of the title on 9
Celones tend to show that ATSI was even remotely involved in the February 2005, the auctioned property could no longer be part of the
proposed offsetting of the outstanding debts of CMCI and PPPC. Even Stay Order.
Felicisima's letter to the new management of CMCI in 2003 contains
nothing to support CMCI's argument that Felicisima represented The RTC denied the entreaty of petitioner. It ruled that because the
herself to be clothed with authority to propose the offsetting. period of redemption up to 15 October 2005 had not yet lapsed at the
time of the issuance of the Stay Order on 25 October 2004, the
ownership thereof had not yet been transferred to petitioner.9
19. Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 Petitioner moved for reconsideration, 10 but to no avail. 11 He then
April 24, 2017 filed an action for certiorari before the CA. He asserted that the Stay
FACTS: Spouses Fernando and Amelia Cruz owned a 464-square- Order undermined the taxing powers of the local government unit. He
meter lot covered by Transfer Certificate of Title (TCT) No. N- also reiterated his arguments that Spouses Cruz owned the property,
126668.4 On 6 January 2004, the City Government of Marikina levied and that the lot had already been auctioned to him.
the property for nonpayment of real estate taxes. The Notice of Levy
was annotated on the title on 8 January 2004. On 14 October 2004, the In the assailed Decision dated 12 June 2008, the CA brushed aside the
City Treasurer of Marikina auctioned off the property, with petitioner claim that the suspension orders undermined the power to tax. As
Joselito Hernand M. Bustos emerging 'as the winning bidder. regards petitioner's main contention, the CA ruled as follows:

Petitioner then applied for the cancellation of TCT No. N-126668. On In the case at bar, the delinquent tax payers were the Cruz Spouses
13 July 2006, the Regional Trial Court, Marikina City, Branch 273, who were the registered owners of the said parcel of land at the time
rendered a final and executory Decision ordering the cancellation of of the delinquency sale. The sale was held on October 14, 2004 and
the previous title and the issuance of a new one under the name of the Cruz
petitioner. 5
Spouses had until October 15, 2005 within which to redeem the parcel
Meanwhile, notices of lis pendens were annotated on TCT No. N- of land. The stay order was issued on October 25, 2004 and inscribed
126668 on 9 February 2005.6 These markings indicated that SEC at the back of the title on February 9, 2005, which is within the
Corp. Case No. 036-04, which was filed before the RTC and involved redemption period. The Cruz Spouses were still the owners of the land
the rehabilitation proceedings for MSI, covered the subject property at the time of the issuance of the stay order. The said parcel of land
and included it in the Stay Order issued by the RTC dated 25 October which secured several mortgage liens for the account of MSI remains
2004.7 to be an asset of the Cruz Spouses, who are the stockholders and/or
officers of MSI, a close corporation. Incidentally, as an exception to
On 26 September 2006, petitioner moved for the exclusion of the the general rule, in a close corporation, the stockholders and/or
subject property from the Stay Order.8 He claimed that the lot officers usually manage the business of the corporation and are subject
belonged to Spouses Cruz who were mere stockholders and officers of to all liabilities of directors, i.e. personally liable for corporate debts
and obligations. Thus, the Cruz Spouses being stockholders of MSI
are personally liable for the latter's debt and obligations. Sec. 96. Definition and applicability of Title. - A close corporation,
within the meaning of this Code, is one whose articles of incorporation
Petitioner unsuccessfully moved for reconsideration. The CA provide that: (1) All the corporation's issued stock of all classes,
maintained its ruling and even held that his prayer to exclude the exclusive of treasury shares, shall be held of record by not more than
property was time-barred by the 10-day reglementary period to oppose a specified number of persons, not exceeding twenty (20); (2) all the
rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of issued stock of all classes shall be subject to one or more specified
Procedure on Corporate Rehabilitation restrictions on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public offering of any
Before this Court, petitioner maintains three points: (1) the Spouses of its stock of any class. Notwithstanding the foregoing, a corporation
Cruz are not liable for the debts of MSI; (2) the Stay Order undermines shall not be deemed a close corporation when at least two-thirds (2/3)
the taxing power of Marikina City; and (3) the time bar rule does not of its voting stock or voting rights is owned or controlled by another
apply to him, because he is not a creditor of MSI. 12 corporation which is not a close corporation within the meaning of this
Code.x x x. (Emphasis supplied)
In their Comment, 13 respondents do not contest that Spouses Cruz
own the subject property. Rather, respondents assert that as In San Juan Structural and Steel Fabricators. Inc. v. Court ol
stockholders and officers of a close corporation, they are personally Appeals,14 this Court held that a narrow distribution of ownership
liable for its debts and obligations. Furthermore, they argue that since does not, by itself, make a close corporation. Courts must look into the
the Rehabilitation Plan of MSI has been approved, petitioner can no articles of incorporation to find provisions expressly stating that (l) the
longer assail the same. number of stockholders shall not exceed 20; or (2) a preemption of
shares is restricted in favor of any stockholder or of the corporation;
ISSUE: Whether the CA correctly considered the properties of or (3) the listing of the corporate stocks in any stock exchange or
Spouses Cruz answerable for the obligations of MSI. making a public offering of those stocks is prohibited.

RULING: Here, neither the CA nor the R TC showed its basis for finding that
MSI is a close corporation. The courts a quo did not at all refer to the
We set aside rulings of the CA for lack of basis. Articles of Incorporation of MSI. The Petition submitted by
respondent in the rehabilitation proceedings before the RTC did not
In finding the subject property answerable for the obligations of MSI, even include those Articles of Incorporation among its attachments.
the CA characterized respondent spouses as stockholders of a close 15
corporation who, as such, are liable for its debts. This conclusion is
baseless. In effect, the CA and the RTC deemed MSI a close corporation based
on the allegation of Spouses Cruz that it was so. However, mere
To be considered a close corporation, an entity must abide by the allegation is not evidence and is not equivalent to proof. 16 For this
requirements laid out in Section 96 of the Corporation Code, which reason alone, the CA rulings should be set aside.
reads:
 We thus apply the general doctrine of separate juridical personality,
which provides that a corporation has a legal personality separate and
Furthermore, we find that the CA seriously erred in portraying the distinct from that of people comprising it. By virtue of that doctrine,
import of Section 97 of the Corporation Code. Citing that provision, stockholders of a corporation enjoy the principle of limited liability:
the CA concluded that "in a close corporation, the stockholders and/or the corporate debt is not the debt of the stockholder. Thus, being an
officers usually manage the business of the corporation and are subject officer or a stockholder of a corporation does not make one's property
to all liabilities of directors, i.e. personally liable for corporate debts the property also of the corporation.
and obligations." 17
Situs Development Corp. v. Asiatrust Bank is analogous to the case at
However, Section 97 of the Corporation Code only specifies that "the bar.1âwphi1 We held therein that the parcels of land mortgaged to
stockholders of the corporation shall be subject to all liabilities of creditor banks were owned not by the corporation, but by the spouses
directors." Nowhere in that provision do we find any inference that who were its stockholders. Applying the doctrine of separate juridical
stockholders of a close corporation are automatically liable for personality, we ruled that the parcels of land of the spouses could not
corporate debts and obligations. be considered part of the corporate assets that could be subjected to
rehabilitation proceedings.
Parenthetically, only Section 100, paragraph 5, of the Corporation
Code explicitly provides for personal liability of stockholders of close In rehabilitation proceedings, claims of creditors are limited to
corporation, viz: demands of whatever nature or character against a debtor or its
property, whether for money or otherwise.23 In several cases,24 we
Sec. 100. Agreements by stockholders. - have already held that stay orders should only cover those claims
directed against corporations or their properties, against their
xxxx guarantors, or their sureties who are not solidarily liable with them, to
the exclusion of accommodation mortgagors.25 To repeat, properties
5. To the extent that the stockholders are actively engaged in the merely owned by stockholders cannot be included in the inventory of
management or operation of the business and affairs of a close assets of a corporation under rehabilitation.
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be Given that the true owner the subject property is not the corporation,
personally liable for corporate torts unless the corporation has petitioner cannot be considered a creditor of MSI but a holder of a
obtained reasonably adequate liability insurance. (Emphasis supplied) claim against respondent spouses.26

As can be read in that provision, several requisites must be present for Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
its applicability. None of these were alleged in the case of Spouses Rehabilitation, directs creditors of the debtor to file an opposition to
Cruz. Neither did the RTC or the CA explain the factual circumstances petitions for rehabilitation within 10 days before the initial hearing of
for this Court to discuss the personally liability of respondents to their rehabilitation proceedings. Since petitioner does not hold any claim
creditors because of corporate torts." over the properties owned by MSI, the time-bar rule does not apply to
him.
 to present evidence on his behalf, because of his failure to appear in
WHEREFORE, the Petition for review on certiorari filed by petitioner subsequent hearings. Lim Tong Lim, on the other hand, filed an
Joselito Hernand M. Bustos is GRANTED. The Decision dated 12 Answer with Counterclaim and Crossclaim and moved for the lifting
June 2008 and Resolution dated 27 October 2008 of the Court of of the Writ of Attachment. 6 The trial court maintained the Writ, and
Appeals in C.A.-G.R. SP. No. 100298 are REVERSED and SET upon motion of private respondent, ordered the sale of the fishing
ASIDE. nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of
P900,000. 7
20. Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc.,
317 SCRA 728, G.R. No. 136448 November 3, 1999 On November 18, 1992, the trial court rendered its Decision, ruling
that Philippine Fishing Gear Industries was entitled to the Writ of
FACTS: On behalf of "Ocean Quest Fishing Corporation," Antonio Attachment and that Chua, Yao and Lim, as general partners, were
Chua and Peter Yao entered into a Contract dated February 7, 1990, jointly liable to pay respondent. 8
for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that The trial court ruled that a partnership among Lim, Chua and Yao
they were engaged in a business venture with Petitioner Lim Tong existed based (1) on the testimonies of the witnesses presented and
Lim, who however was not a signatory to the agreement. The total (2) on a Compromise Agreement executed by the three 9 in Civil
price of the nets amounted to P532,045. Four hundred pieces of Case No. 1492-MN which Chua and Yao had brought against Lim in
floats worth P68,000 were also sold to the Corporation. 4 the RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a
The buyers, however, failed to pay for the fishing nets and the floats; declaration of ownership of fishing boats; (d) an injunction and (e)
hence, private respondents filed a collection suit against Chua, Yao damages. 10 The Compromise Agreement provided:
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities a) That the parties plaintiffs & Lim Tong Lim agree to have the
as general partners, on the allegation that "Ocean Quest Fishing four (4) vessels sold in the amount of P5,750,000.00 including the
Corporation" was a nonexistent corporation as shown by a fishing net. This P5,750,000.00 shall be applied as full payment for
Certification from the Securities and Exchange Commission. 5 On P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
September 20, 1990, the lower court issued a Writ of Preliminary Lim;
Attachment, which the sheriff enforced by attaching the fishing nets
on board F/B Lourdes which was then docked at the Fisheries Port, b) If the four (4) vessel[s] and the fishing net will be sold at a
Navotas, Metro Manila. higher price than P5,750,000.00 whatever will be the excess will be
divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which c) If the proceeds of the sale the vessels will be less than
to pay. He also turned over to respondent some of the nets which P5,750,000.00 whatever the deficiency shall be shouldered and paid
were in his possession. Peter Yao filed an Answer, after which he
was deemed to have waived his right to cross-examine witnesses and
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; Petitioner argues that under the doctrine of corporation by estoppel,
1/3 Peter Yao. 11 liability can be imputed only to Chua and Yao, and not to him.
Again, we disagree.
The trial court noted that the Compromise Agreement was silent as
to the nature of their obligations, but that joint liability could be Sec. 21 of the Corporation Code of the Philippines provides:
presumed from the equal distribution of the profit and loss. 21
Sec. 21. Corporation by estoppel. — All persons who assume to act
Lim appealed to the Court of Appeals (CA) which, as already stated, as a corporation knowing it to be without authority to do so shall be
affirmed the RTC. liable as general partners for all debts, liabilities and damages
In affirming the trial court, the CA held that petitioner was a partner incurred or arising as a result thereof: Provided however, That when
of Chua and Yao in a fishing business and may thus be held liable as any such ostensible corporation is sued on any transaction entered by
a such for the fishing nets and floats purchased by and for the use of it as a corporation or on any tort committed by it as such, it shall not
the partnership. be allowed to use as a defense its lack of corporate personality.

ISSUE: Whether by their acts, Lim, Chua and Yao could be deemed One who assumes an obligation to an ostensible corporation as such,
to have entered into a partnership. cannot resist performance thereof on the ground that there was in fact
no corporation.

HELD: In arguing that he should not be held liable for the Thus, even if the ostensible corporate entity is proven to be legally
equipment purchased from respondent, petitioner controverts the CA nonexistent, a party may be estopped from denying its corporate
finding that a partnership existed between him, Peter Yao and existence. "The reason behind this doctrine is obvious — an
Antonio Chua. He asserts that the CA based its finding on the unincorporated association has no personality and would be
Compromise Agreement alone. Furthermore, he disclaims any direct incompetent to act and appropriate for itself the power and attributes
participation in the purchase of the nets, alleging that the of a corporation as provided by law; it cannot create agents or confer
negotiations were conducted by Chua and Yao only, and that he has authority on another to act in its behalf; thus, those who act or
not even met the representatives of the respondent company. purport to act as its representatives or agents do so without authority
Petitioner further argues that he was a lessor, not a partner, of Chua and at their own risk. And as it is an elementary principle of law that
and Yao, for the "Contract of Lease " dated February 1, 1990, a person who acts as an agent without authority or without a
showed that he had merely leased to the two the main asset of the principal is himself regarded as the principal, possessed of all the
purported partnership — the fishing boat F/B Lourdes. The lease was right and subject to all the liabilities of a principal, a person acting or
for six months, with a monthly rental of P37,500 plus 25 percent of purporting to act on behalf of a corporation which has no valid
the gross catch of the boat. existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts
Corporation by Estoppel performed as such agent.
The doctrine of corporation by estoppel may apply to the alleged Clearly, under the law on estoppel, those acting on behalf of a
corporation and to a third party. In the first instance, an corporation and those benefited by it, knowing it to be without valid
unincorporated association, which represented itself to be a existence, are held liable as general partners.
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such Technically, it is true that petitioner did not directly act on behalf of
representation. It cannot allege lack of personality to be sued to the corporation. However, having reaped the benefits of the contract
evade its responsibility for a contract it entered into and by virtue of entered into by persons with whom he previously had an existing
which it received advantages and benefits. relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel. We
On the other hand, a third party who, knowing an association to be reiterate the ruling of the Court in Alonso v. Villamor:
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence A litigation is not a game of technicalities in which one, more deeply
in a suit brought against the alleged corporation. In such case, all schooled and skilled in the subtle art of movement and position,
those who benefited from the transaction made by the ostensible entraps and destroys the other. It is, rather, a contest in which each
corporation, despite knowledge of its legal defects, may be held contending party fully and fairly lays before the court the facts in
liable for contracts they impliedly assented to or took advantage of. issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that
There is no dispute that the respondent, Philippine Fishing Gear justice be done upon the merits. Lawsuits, unlike duels, are not to be
Industries, is entitled to be paid for the nets it sold. The only question won by a rapier's thrust. Technicality, when it deserts its proper
here is whether petitioner should be held jointly liable with Chua office as an aid to justice and becomes its great hindrance and chief
and Yao. Petitioner contests such liability, insisting that only those enemy, deserves scant consideration from courts. There should be no
who dealt in the name of the ostensible corporation should be held vested rights in technicalities.
liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation,
ergo, he cannot be held liable. 21. Mindanao Savings and Loan Association, Inc. vs. Willkom,
634 SCRA 291, G.R. No. 178618 October 20, 2010
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an FACTS: The First Iligan Savings and Loan Association, Inc.
asset of the partnership. He in fact questions the attachment of the (FISLAI) and the Davao Savings and Loan Association, Inc.
nets, because the Writ has effectively stopped his use of the fishing (DSLAI) are entities duly registered with the Securities and
vessel. Exchange Commission (SEC) under Registry Nos. 34869 and 32388,
respectively, primarily engaged in the business of granting loans and
It is difficult to disagree with the RTC and the CA that Lim, Chua receiving deposits from the general public, and treated as banks.
and Yao decided to form a corporation. Although it was never legally Sometime in 1985, FISLAI and DSLAI entered into a merger, with
formed for unknown reasons, this fact alone does not preclude the DSLAI as the surviving corporation.5 The articles of merger were
liabilities of the three as contracting parties in representation of it. not registered with the SEC due to incomplete documentation.6 On
August 12, 1985, DSLAI changed its corporate name to MSLAI by
way of an amendment to Article 1 of its Articles of Incorporation, certificates of title covering the subject properties were issued in
but the amendment was approved by the SEC only on April 3, 1987. favor of Willkom. On September 20, 1994, Willkom sold one of the
subject parcels of land to Go.11
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI
passed and approved Board Resolution No. 86-002, assigning its On June 14, 1995, MSLAI, represented by PDIC, filed before the
assets in favor of DSLAI which in turn assumed the former’s RTC, Branch 41 of Cagayan de Oro City, a complaint for Annulment
liabilities. of Sheriff’s Sale, Cancellation of Title and Reconveyance of
Properties against respondents.12 MSLAI alleged that the sale on
The business of MSLAI, however, failed. Hence, the Monetary execution of the subject properties was conducted without notice to it
Board of the Central Bank of the Philippines ordered its closure and and PDIC; that PDIC only came to know about the sale for the first
placed it under receivership per Monetary Board Resolution No. 922 time in February 1995 while discharging its mandate of liquidating
dated August 31, 1990. The Monetary Board found that MSLAI’s MSLAI’s assets; that the execution of the RTC decision in Civil
financial condition was one of insolvency, and for it to continue in Case No. 111-697 was illegal and contrary to law and jurisprudence,
business would involve probable loss to its depositors and creditors. not only because PDIC was not notified of the execution sale, but
On May 24, 1991, the Monetary Board ordered the liquidation of also because the assets of an institution placed under receivership or
MSLAI, with PDIC as its liquidator.9 liquidation such as MSLAI should be deemed in custodia legis and
should be exempt from any order of garnishment, levy, attachment,
It appears that prior to the closure of MSLAI, Uy filed with the RTC, or execution.13
Branch 3 of Iligan City, an action for collection of sum of money
against FISLAI, docketed as Civil Case No. 111-697. On October 19, In answer, respondents averred that MSLAI had no cause of action
1989, the RTC issued a summary decision in favor of Uy, directing against them or the right to recover the subject properties because
defendants therein (which included FISLAI) to pay the former the MSLAI is a separate and distinct entity from FISLAI. They further
sum of ₱136,801.70, plus interest until full payment, 25% as contended that the "unofficial merger" between FISLAI and DSLAI
attorney’s fees, and the costs of suit. The decision was modified by (now MSLAI) did not take effect considering that the merging
the CA by further ordering the third-party defendant therein to companies did not comply with the formalities and procedure for
reimburse the payments that would be made by the defendants. The merger or consolidation as prescribed by the Corporation Code of the
decision became final and executory on February 21, 1992. A writ of Philippines. Finally, they claimed that FISLAI is still a SEC
execution was thereafter issued.10 registered corporation and could not have been absorbed by
petitioner.14
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land
owned by FISLAI located in Cagayan de Oro City, and the notice of On March 13, 1997, the RTC issued a resolution dismissing the case
sale was subsequently published. During the public auction on May for lack of jurisdiction. The RTC declared that it could not annul the
17, 1993, Willkom was the highest bidder. A certificate of sale was decision in Civil Case No. 111-697, having been rendered by a court
issued and eventually registered with the Register of Deeds of of coordinate jurisdiction.15
Cagayan de Oro City. Upon the expiration of the redemption period,
sheriff Bantuas issued the sheriff’s definite deed of sale. New
On appeal, MSLAI failed to obtain a favorable decision when the CA stockholders representing two-thirds of the outstanding capital stock
affirmed the RTC resolution. will be needed. Appraisal rights, when proper, must be respected.

ISSUE: Was the merger between FISLAI and DSLAI (now (3) Execution of the formal agreement, referred to as the articles of
MSLAI) valid and effective merger o[r] consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of
HELD: NO. Ordinarily, in the merger of two or more existing incorporation of the consolidated corporation, or amend the articles
corporations, one of the corporations survives and continues the of incorporation of the surviving corporation.
combined business, while the rest are dissolved and all their rights,
properties, and liabilities are acquired by the surviving corporation. (4) Submission of said articles of merger or consolidation to the SEC
Although there is a dissolution of the absorbed or merged for approval.
corporations, there is no winding up of their affairs or liquidation of
their assets because the surviving corporation automatically acquires (5) If necessary, the SEC shall set a hearing, notifying all
all their rights, privileges, and powers, as well as their liabilities. corporations concerned at least two weeks before.

The merger, however, does not become effective upon the mere (6) Issuance of certificate of merger or consolidation.28
agreement of the constituent corporations. Since a merger or
consolidation involves fundamental changes in the corporation, as Clearly, the merger shall only be effective upon the issuance of a
well as in the rights of stockholders and creditors, there must be an certificate of merger by the SEC, subject to its prior determination
express provision of law authorizing them. that the merger is not inconsistent with the Corporation Code or
existing laws.29 Where a party to the merger is a special corporation
The steps necessary to accomplish a merger or consolidation, as governed by its own charter, the Code particularly mandates that a
provided for in Sections 76,24 77,25 78,26 and 7927 of the favorable recommendation of the appropriate government agency
Corporation Code, are: should first be obtained.30

(1) The board of each corporation draws up a plan of merger or In this case, it is undisputed that the articles of merger between
consolidation. Such plan must include any amendment, if necessary, FISLAI and DSLAI were not registered with the SEC due to
to the articles of incorporation of the surviving corporation, or in incomplete documentation. Consequently, the SEC did not issue the
case of consolidation, all the statements required in the articles of required certificate of merger. Even if it is true that the Monetary
incorporation of a corporation. Board of the Central Bank of the Philippines recognized such
merger, the fact remains that no certificate was issued by the SEC.
(2) Submission of plan to stockholders or members of each Such merger is still incomplete without the certification.
corporation for approval. A meeting must be called and at least two
(2) weeks’ notice must be sent to all stockholders or members, The issuance of the certificate of merger is crucial because not only
personally or by registered mail. A summary of the plan must be does it bear out SEC’s approval but it also marks the moment when
attached to the notice. Vote of two-thirds of the members or of the consequences of a merger take place. By operation of law, upon
the effectivity of the merger, the absorbed corporation ceases to exist cannot, therefore, be faulted for enforcing their claim against FISLAI
but its rights and properties, as well as liabilities, shall be taken and on the properties registered under its name. Accordingly, MSLAI, as
deemed transferred to and vested in the surviving corporation.31 the successor-in-interest of DSLAI, has no legal standing to annul
the execution sale over the properties of FISLAI. With more reason
The same rule applies to consolidation which becomes effective not can it not cause the cancellation of the title to the subject properties
upon mere agreement of the members but only upon issuance of the of Willkom and Go.
certificate of consolidation by the SEC.32 When the SEC, upon
processing and examining the articles of consolidation, is satisfied
that the consolidation of the corporations is not inconsistent with the
provisions of the Corporation Code and existing laws, it issues a
certificate of consolidation which makes the reorganization
official.33 The new consolidated corporation comes into existence
and the constituent corporations are dissolved and cease to exist.34

There being no merger between FISLAI and DSLAI (now MSLAI),

for third parties such as respondents, the two corporations shall not
be considered as one but two separate corporations. A corporation is
an artificial being created by operation of law. It possesses the right
of succession and such powers, attributes, and properties expressly
authorized by law or incident to its existence.35 It has a personality
separate and distinct from the persons composing it, as well as from
any other legal entity to which it may be related.36 Being separate
entities, the property of one cannot be considered the property of the
other.

Thus, in the instant case, as far as third parties are concerned, the
assets of FISLAI remain as its assets and cannot be considered as
belonging to DSLAI and MSLAI, notwithstanding the Deed of
Assignment wherein FISLAI assigned its assets and properties to
DSLAI, and the latter assumed all the liabilities of the former. As
provided in Article 1625 of the Civil Code, "an assignment of credit,
right or action shall produce no effect as against third persons, unless
it appears in a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real property."
The certificates of title of the subject properties were clean and
contained no annotation of the fact of assignment. Respondents